Is There A Benefit To The Borrower In Providing Security?
If you are considering applying for borrowing on behalf of your business then it is quite likely that the lender will require one or more forms of security to reduce its exposure to risk of loss.
One of the factors that affects whether a lender will require security is how much your business wishes to borrow. For instance, if your business requires an overdraft facility of say £1,000 as a temporary measure then, depending upon a number of other underwriting factors, the lender may not insist on the borrowing being secured.
However, if your business required a commercial mortgage of say £250,000 towards the purchase of new business premises then the lender is almost certainly going to require security that could include things like a first legal mortgage over the premises to be purchased with an adequate security margin, a mortgage debenture and personal unsupported or supported guarantees.
So, are there any benefits to the borrower in providing security?
Well, if the lender will not even consider lending the monies without security and that was the only other available source of funding then the obvious benefit in providing security is that the business is able to raise the monies required for their intended purpose.
If the business has been operating out of premises that it is renting but now requires say a commercial mortgage to purchase new premises then those premises are a potential asset that may increase in value over the years thus providing a potential financial benefit to the business.
Interest rates on secured lending are usually lower than on lending that is unsecured so the repayments on the secured borrowing could be lower than on unsecured lending although any fees charged by the lender in connection with taking security would need to be taken into account when calculating which form of lending is cheaper overall.
So, there are some potential benefits in a business borrowing funds on a secured basis although secured lending may be the only option available in many instances.