What Are the Different Types of Secured Business Loans?

Capital is essential for any business, not just for growth but also for day-to-day sustainability. Expansion, infrastructure upgrades, or cash flow gaps all require reliable access to funds. This is where secured business loans come in. These loans, backed by collateral, offer higher amounts, longer tenures, and relatively lower interest rates compared to unsecured alternatives. From property and machinery to receivables and stocks, businesses can leverage various assets to secure the funding they need.

Exploring the different types of secured loans for business helps you find the financing that best fits your operational needs. These loans are particularly useful for small business owners from economically weaker sections (EWS), low-income groups (LIG), and first-time borrowers who may not have a strong credit history but own valuable assets.

Term Loan (Secured Business Loan)

Term loans are the most traditional form of business financing. They involve borrowing a lump sum amount and repaying it over a fixed tenure with interest. When backed by collateral such as property, equipment, or inventory, they become secure term loans, which generally come with better terms and lower interest rates. These loans basically fall under two broad categories — long-term loans and short-term loans.

Long-Term Business Loan

A long-term secured business loan typically spans 5 to 15 years and is best suited for capital-intensive investments like:

• Business expansion
• Setting up new facilities
• Acquiring commercial property
• Purchasing high-cost machinery

Since these loans are secured, lenders are more willing to offer higher amounts, sometimes going up to several crores, depending on the collateral value and repayment capacity.

Short-Term Business Loan

Short-term secured loans for business are ideal for covering temporary capital needs, usually over a tenure of 12 to 36 months. These are often used for

• Bulk inventory purchase
• Seasonal demand surges
• Minor renovations or upgrades

By pledging assets, businesses can gain access to swift funding with flexible repayment structures and minimal disruption to day-to-day operations. IIFL Home Loans offers flexible tenure options for up to 12 years, making it easier to manage monthly EMIs.

Working Capital Loans

Working capital loans are tailored to fund the everyday operational expenses of a business, such as paying salaries, managing utility bills, or maintaining stock levels. When secured, these loans are backed by:

• Inventory
• Raw materials
• Unpaid invoices

This ensures that the loan limit aligns with the actual business performance and asset base. Secured working capital loans often come with renewable credit lines, offering continuous liquidity if the agreed parameters are met.

Loan Against Property (LAP) for Business

One of the most popular financing methods in the SME segment, Loan Against Property (LAP) allows businesses to unlock the value of their existing real estate, residential or commercial. It’s a smart way to raise large-ticket loans without selling assets.

Key features:

• Loan amount typically up to 60–70% of the property’s market value
• Tenure of up to 15 years
• Can be used for diverse purposes: expansion, marketing, vendor payments, etc.

LAP is especially beneficial for entrepreneurs who may not have a formal credit history but own high-value property.

Equipment and Machinery Loans

Businesses involved in manufacturing, construction, or logistics often require heavy machinery and specialized equipment. Equipment loans, backed by the assets being financed, are a cost-effective way to upgrade or purchase such machinery without affecting cash reserves.

Features include:

• Loans covering up to 90–100% of equipment cost
• Flexible repayment based on equipment lifecycle
• Faster processing with limited documentation

Since the equipment itself acts as collateral, this loan type ensures minimal additional asset pledge and immediate access to productivity tools.

Invoice Financing (Secured Receivables Loan)

Delayed payments from clients can strain cash flow. Invoice financing, or secured receivables loans, solves this problem by allowing businesses to borrow against their outstanding invoices.

How it works:

• Lenders advance 70–90% of the invoice value
• Repayment happens once the client settles the invoice
• The remaining balance (minus lender fee) is disbursed post-payment

This form of financing is especially useful for B2B companies with long payment cycles and large corporate clients. It converts receivables into instant working capital.

Letter of Credit and Bank Guarantee

In the world of trade, domestic or international, letters of credit (LC) and bank guarantees (BG) act as trust anchors between buyers and sellers. These are non-fund-based secured facilities, where the bank assures payment on behalf of the business.

• Letter of Credit: Used when importing goods, assuring the seller of timely payment once shipment conditions are fulfilled.
• Bank Guarantee: Used in government tenders, project bids, and large contracts where performance assurance or payment guarantee is required.

Although no funds are disbursed upfront, these instruments require collateral such as fixed deposits, property, or other assets and are a vital part of business financing.

Secured Overdraft Facility

A secured overdraft (OD) facility offers businesses a credit cushion against a current account, usually backed by collateral-like property, inventory, or deposits. It’s ideal for managing uneven cash flow, especially in cyclical or seasonal industries.

Key advantages:

• Interest is charged only on the amount utilized
• The credit limit is pre-approved and reusable
• No fixed EMI commitments

This flexibility makes OD facilities a preferred choice for businesses with unpredictable receivables or fluctuating expenses.

Final Thoughts

Secured business loans come in many forms, each tailored to different needs, from one-time capital expenditures to revolving credit support. By leveraging collateral effectively, businesses can access high-value funding at more affordable interest rates while building financial discipline and credit history along the way. Be it machinery purchase or cash flow management, a secured loan can drive your business growth.

IIFL Home Loans offers a wide range of secured business loans with amounts up to ₹15 crore, tenures of up to 12 years, and interest rates starting from 10.75% p.a. With local branch support, transparent processing, and options tailored for small businesses and underserved borrowers, you can fund your business goals confidently.