What Can You Use as Security for a Business Loan
What can be used as security for a business loan? Property, equipment, invoices, stock and more explained, with trade-offs and how to decide.
Security for a business loan is any asset a lender can take and sell if the loan is not repaid. Common examples are commercial or residential property, business equipment, vehicles, unpaid invoices, stock, cash savings and, more indirectly, a personal guarantee backed by your own assets. What you can pledge depends on what your business owns, the asset’s value and how easily a lender could sell it.
This page explains the main types of security UK lenders accept, how each one works, the trade-offs, and how to think about which fits your situation. Greenwood Capital is a whole-of-market broker, and this is general information to help you understand your options, not financial advice.
What counts as security for a business loan?
Security (also called collateral) is an asset pledged against borrowing so the lender has a fallback if repayments stop. If you default, the lender can take the secured asset, sell it and recover what it is owed. Because that lowers the lender’s risk, secured loans often allow larger amounts, longer terms and different pricing than unsecured borrowing.
Not every asset works equally well. Lenders prefer things that are easy to value, hold their worth and can be sold reasonably quickly. A freehold warehouse ticks those boxes far better than specialised, hard-to-resell machinery.
The main categories are property, physical business assets, receivables (money owed to you), stock and inventory, cash or investments, and personal guarantees. Most secured business lending draws on one or more of these.
How does each type of security work?
Commercial and residential property
Property is the most widely accepted form of security because it holds value and is straightforward to value and sell. A lender takes a legal charge over the property, which is registered at the Land Registry and gives them the right to recover the debt from a sale.
A first charge means that lender is first in line to be repaid from a sale. A second charge sits behind an existing mortgage, so it is repaid only after the first lender is settled. You can use commercial premises, buy-to-let property, land, or in some cases your own home. Using a personal residence carries obvious risk and usually involves extra safeguards.
Plant, machinery, equipment and vehicles
Hard assets such as manufacturing machinery, commercial vehicles, agricultural equipment and IT hardware can secure a loan. This often overlaps with asset finance, where the borrowing is tied directly to a specific item.
Lenders assess the resale market, age and condition. Standard, widely used equipment (a common HGV, a mainstream excavator) is easier to fund than bespoke kit that only your business would ever use. The amount offered is usually a percentage of the asset’s value rather than the full figure.
Invoices and receivables
If you invoice other businesses on credit terms, the unpaid invoices themselves can be security. This is the basis of invoice finance, where a lender advances a portion of an invoice’s value (often a large majority) and releases the rest, minus fees, once your customer pays.
This suits businesses with a stthe reliable book of B2B invoices and long payment terms. It works less well for firms paid immediately by consumers, or where a single customer dominates the ledger.
Stock and inventory
Finished goods, raw materials and saleable inventory can support borrowing, often through stock finance or as part of a wider asset-backed facility. Because stock can be perishable, seasonal or hard to shift, lenders tend to advance a conservative percentage and value it carefully.
Non-perishable, high-demand stock with a stable resale value is treated more favourably than niche or fast-depreciating items.
Cash, savings and investments
Cash on deposit or a portfolio of investments can act as security. Because cash carries almost no valuation risk, it is the simplest collateral of all, though many businesses would rather use cash directly than pledge it. Investment portfolios can secure borrowing, but their value moves with the market, so lenders apply a margin.
Personal guarantees
A personal guarantee is a written promise by a director or owner to repay the debt personally if the business cannot. It is not an asset itself, but it gives the lender access to your personal wealth (such as home equity or savings) if things go wrong.
Many business loans, including some marketed as unsecured, require a personal guarantee. It is common, but it moves risk onto you as an individual, so understand its scope before signing. Some guarantees are capped at a set amount, others are not.
What are the trade-offs between different types of security?
The right security balances how much you can borrow, how quickly you can access funds, cost, and how much you put at risk. Property usually unlocks the most and often the keenest pricing, but valuations and legal work take time. Receivables and equipment can be faster, though amounts may be smaller. As a rule, the easier an asset is to value and sell, the more favourably a lender treats it.
| Security type | Typical use | Speed to arrange | Amount available | Key risk or limitation |
|---|---|---|---|---|
| Commercial or residential property | Larger loans, longer terms | Slower (valuation and legal work) | High, tied to equity | Loss of premises or home on default |
| Plant, machinery, vehicles | Equipment purchase or refinance | Moderate | Medium, a share of asset value | Depreciation, poor resale for niche kit |
| Invoices and receivables | Cash flow, working capital | Fast once set up | Grows with your sales ledger | Customer non-payment, concentration risk |
| Stock and inventory | Seasonal or trading businesses | Moderate | Conservative percentage of value | Perishability, hard-to-sell items |
| Cash and investments | Simple, low-cost security | Fast | Close to the pledged value | Ties up funds; market movement |
| Personal guarantee | Supports many loan types | Fast | Depends on personal wealth | Personal liability if business fails |
On cost, secured borrowing is often priced more keenly than unsecured because the lender’s risk is lower, but rates vary widely by asset, loan-to-value, your trading history and the lender. Do not assume a headline figure. Always confirm current rates and fees directly with the lender before you commit.
How do you decide what security to use?
Start with what your business genuinely owns and can afford to put at risk, then match that to what you need the money for. Short-term working capital gaps often suit receivables or stock, while buying premises or large equipment suits property or asset-based lending over a longer term. The goal is to borrow enough on sensible terms without pledging more than the situation warrants.
Work through a few practical questions:
- What do you own outright or with equity? A property with substantial equity opens up more options than one that is heavily mortgaged.
- How quickly do you need funds? Property-backed loans take longer than invoice or cash-backed facilities.
- How much are you comfortable risking? Pledging a family home is very different from pledging a spare piece of machinery.
- Is the asset stable in value? Lenders reward assets that are easy to value and resell, which usually means better terms for you.
- Do you want to keep using the asset? With most secured loans you keep using the asset while you repay, provided you meet the terms.
It often makes sense to compare more than one structure, because the same funding need can sometimes be met by property, equipment or receivables on quite different terms.
Worked examples
Example 1: a manufacturer buying new machinery
A Manchester engineering firm wants to buy a 120,000 pound CNC machine. Rather than pledge its premises, it secures the borrowing against the machine itself through asset finance. Because the equipment is a mainstream model with a clear resale market, the lender is comfortable advancing a large share of the value. The firm keeps its property unencumbered and matches the repayment term to the machine’s useful life.
Example 2: a wholesaler with a cash flow gap
A wholesaler sells to retailers on 60-day terms and is regularly short of cash while waiting for payment. Instead of a property loan, it uses invoice finance, with its unpaid invoices as security. Funds are released against invoices as they are raised, so the facility grows with sales. The trade-off is the ongoing fee and reliance on customers paying on time, so the business monitors its ledger closely.
Common mistakes and things people overlook
The most common mistake is pledging more security, or riskier security, than the situation needs, especially agreeing a broad personal guarantee without understanding its limits. Read the detail before you sign, not after.
- Not checking whether a guarantee is capped. An uncapped personal guarantee can extend beyond the loan amount to include interest and costs. Always confirm the ceiling.
- Assuming “unsecured” means no personal risk. Many unsecured loans still require a personal guarantee, which exposes your own assets.
- Overestimating an asset’s value. Lenders use their own valuations and advance a percentage, not the full market figure, so expect the offer to be lower than you hope.
- Ignoring existing charges. If an asset already has a first charge, a new loan may only be possible as a second charge, which affects terms and availability.
- Forgetting the cost of setup. Valuations, legal fees and arrangement costs add up, particularly on property. Factor these in when comparing offers.
- Fixing on one lender too early. Different lenders value the same asset differently and set different loan-to-value limits, so comparing the market matters.
Let Greenwood Capital compare the market for you
Different lenders value the same asset very differently and set their own limits on loan-to-value and structure, so the option that suits your business is not always obvious. Greenwood Capital is a Manchester-based, whole-of-market broker specialising in secured business loans, and we can look across the lending market and match options to your situation as general help.
Tell us what your business owns and what you are trying to fund, and we will explain the routes open to you and help you compare them, so you can confirm the detail and current terms with the lender before you decide. Get in touch to start a no-obligation conversation.