Starting a business is a bold move. While passion and innovation are vital, access to capital often defines whether a startup takes off or fizzles out. Secured business loans are one of the most viable funding options for startups, especially those with limited credit history or cash flow. In this comprehensive guide, we’ll explore what secured business loans are, how they work, their benefits and drawbacks, and how startups in India can leverage them effectively in 2025.
What Are Secured Business Loans?
Secured business loans are loans that require the borrower to pledge an asset as collateral. This collateral could be property, machinery, inventory, or even future invoices. If the borrower defaults, the lender has the legal right to seize the collateral to recover the outstanding loan.
✅ Common Collateral Types:
| Collateral Type | Description |
|---|---|
| Commercial property | Office buildings, land, or factories |
| Equipment | Machines, tools, or vehicles |
| Inventory | Finished goods or raw materials |
| Personal property | Homes or personal assets (in some cases) |
| Future receivables | Outstanding invoices or revenue streams |
Why Startups Should Consider Secured Business Loans
Unlike unsecured loans that rely heavily on credit history and business performance, secured loans give startups a chance to access higher amounts with lower interest rates—if they have assets to pledge.
✅ Key Advantages:
- Lower interest rates (typically 10%–16%)
- Higher loan amounts
- Flexible repayment tenure (up to 15 years)
- Better approval chances even with limited credit history
Secured vs Unsecured Loans for Startups
| Feature | Secured Loan | Unsecured Loan |
|---|---|---|
| Collateral Required | Yes | No |
| Interest Rate | Lower (10–16%) | Higher (16–24%) |
| Loan Amount | Higher | Limited |
| Credit History Needed | Not mandatory | Mandatory |
| Approval Time | Slower (due to asset verification) | Faster |
| Risk Level for Lender | Low (due to collateral) | High |
Eligibility Criteria for Secured Startup Loans in India (2025)
Though the exact requirements differ by lender, the general criteria for startups applying for secured loans are as follows:
📌 Basic Requirements:
- Business should be registered in India
- Collateral with clear ownership is mandatory
- Founder(s) must be Indian citizen(s)
- Age of applicant: 21–65 years
- Business should have a viable plan or model
- Acceptable credit score (not compulsory, but preferred)
Top Banks & NBFCs Offering Secured Startup Loans in India (2025)
| Bank/NBFC | Loan Amount Range | Interest Rate (Approx.) | Tenure |
|---|---|---|---|
| SBI | ₹10 lakh to ₹20 crore | 9.75% – 11.25% | Up to 15 yrs |
| HDFC Bank | ₹5 lakh to ₹40 crore | 10.5% – 13.5% | Up to 10 yrs |
| ICICI Bank | ₹10 lakh to ₹50 crore | 10% – 14% | Up to 10 yrs |
| Bajaj Finserv | ₹2 lakh to ₹25 crore | 12% – 16% | Up to 7 yrs |
| Axis Bank | ₹5 lakh to ₹30 crore | 10.25% – 13.75% | Up to 15 yrs |
Documents Required for Application
Having the right documentation can fast-track your secured loan approval.
📄 Key Documents:
- KYC documents (PAN, Aadhaar, Passport, etc.)
- Proof of business registration
- Detailed business plan
- Ownership documents of collateral
- Bank statements (last 6–12 months)
- Income Tax Returns (if available)
How to Apply for a Secured Business Loan: Step-by-Step
- Assess your collateral
Ensure the asset is valuable and legally owned. - Choose the right lender
Compare offers from banks, NBFCs, and government schemes. - Gather documents
Ensure all papers, especially for the collateral, are in order. - Apply online or offline
Fill out the application and attach required documentation. - Undergo verification
Lenders will evaluate the asset and verify business viability. - Approval & Disbursement
Once approved, funds are disbursed to your account.
Government Schemes That Offer Secured Loans for Startups
The Indian government actively supports startups through various schemes:
💼 MUDRA Loans (under PMMY)
- Offers up to ₹10 lakh
- Often backed by collateral or guarantee
- Designed for micro and small enterprises
🏢 Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)
- Offers collateral-free loans (with guarantee backing)
- Can be combined with secured loans for larger funding
- Partnered with major public and private banks
Use Cases: How Startups Use Secured Loans
Secured loans can be a lifeline for many early-stage businesses. Here’s how they are used across industries:
| Industry | Common Use of Secured Loans |
|---|---|
| Manufacturing | Buying machines, factory setup |
| Retail | Bulk inventory purchase |
| EdTech/Tech | Office space, product development |
| Logistics | Fleet purchase, warehouse lease |
| Food/Beverage | Kitchen setup, equipment purchase |
Tips for Getting Approval Faster
- Maintain a clean title on collateral: Any legal disputes can delay or deny the loan.
- Prepare a professional business plan: Include market analysis, growth projections, and repayment strategy.
- Avoid over-leveraging: Don’t pledge already mortgaged assets.
- Work on improving your credit score: While not mandatory, a better score helps negotiate lower interest rates.
Risks Associated with Secured Business Loans
While secured loans come with several benefits, they also carry certain risks:
⚠️ Major Risks:
- Loss of asset in case of default
- Longer processing time due to property evaluation
- Market fluctuations may impact asset value
It’s essential to borrow only what your business can reasonably repay.
Secured Business Loans vs Equity Funding
Many startups debate whether to opt for loans or raise equity. Here’s a quick comparison:
| Feature | Secured Loan | Equity Funding |
|---|---|---|
| Ownership | No dilution | Dilution of stake |
| Repayment | Yes, with interest | No repayment, but share profit |
| Risk | Asset loss risk | No personal asset risk |
| Processing Time | Faster (2–4 weeks) | Slower (months) |
| Cost of Capital | Lower overall | Higher (future equity value) |
Real-Life Example: Startup Success with Secured Loans
Case Study: Aarav Technologies Pvt. Ltd.
- Location: Bengaluru, Karnataka
- Business: AI-powered HR tech
- Challenge: Needed ₹50 lakh for product development and hiring
- Solution: Pledged a family-owned property worth ₹1.2 crore to secure a business loan from HDFC Bank at 10.75%
- Result: Hired a full-stack development team and launched MVP in 6 months
“The secured loan helped us scale quickly without giving up equity. It was a calculated risk worth taking,” says co-founder Meenakshi Rao.
Conclusion: Should You Opt for a Secured Business Loan?
If you’re a startup with valuable assets and a robust business plan, secured business loans can be a powerful funding tool. They offer lower interest rates, higher amounts, and long-term repayment flexibility. However, it’s crucial to weigh the risks and ensure your business can service the loan without defaulting.
For startups looking to maintain equity and gain quick capital access without high credit scores, secured loans in India remain a smart, strategic option in 2025.
Frequently Asked Questions (FAQs)
❓ Can I get a secured loan without business revenue?
Yes, lenders may approve based on collateral value and business viability, especially for startups.
❓ Is collateral always required?
Yes, that’s what differentiates secured loans from unsecured loans.
❓ How long does approval take?
Usually 7–21 working days depending on asset valuation and document verification.
❓ Can I prepay the loan?
Yes, most banks allow prepayment, sometimes with a nominal charge.