Secured Commercial Line of Credit
A secured commercial line of credit uses business or personal assets as collateral. The collateral gives the lender a claim against those assets if the borrower defaults. In exchange, secured facilities typically offer lower interest rates, higher credit limits, and looser eligibility requirements than unsecured alternatives.
Common types of collateral
What qualifies as collateral depends on the lender and facility type.
- Accounts receivable (invoice-based or ABL facilities)
- Inventory (specific inventory pledged or general inventory lien)
- Business equipment and machinery
- Commercial real estate owned by the business
- Business owner's personal real estate (riskier — personal assets at stake)
- General blanket lien on all business assets (UCC-1 filing)
How collateral reduces cost
Collateral reduces the lender's risk: if the business cannot repay, the lender can recover from the pledged assets. This lower risk is typically reflected in a lower interest rate and higher willingness to lend. A business that might qualify for a $50,000 unsecured line at 25% might qualify for a $200,000 secured line at 12%.
Risks of secured financing
The primary risk is asset loss. If the business defaults and the collateral is seized and liquidated, the business may lose critical operating assets — receivables it was counting on, inventory it needed to sell, or equipment it needed to operate. Personal real estate pledged as collateral puts the owner's home at risk.
If you pledge personal real estate as collateral for a business line, you are putting personal assets at risk. Consult an attorney before doing so.
Frequently Asked Questions
- What is a UCC-1 filing?
- A UCC-1 (Uniform Commercial Code Article 1) is a legal filing that gives public notice that a lender has a security interest in the borrower's assets. It's commonly filed by lenders as a blanket lien on all business assets rather than a specific pledge.