How a Secured Business Loan Works

Secured business loans are the backbone of asset-heavy Canadian SMEs. You pledge collateral—typically equipment, titled vehicles, inventory, or receivables—in exchange for larger limits, lower rates, and longer terms than most unsecured options. Below is a clear, credit-analyst walkthrough of the mechanics, structures, costs, and tactics to get approved on the best possible terms.

The secured-loan process (step by step)

1. Define the need and the asset
   Are you purchasing a machine, truck, or trailer? Or unlocking cash from equipment you already own? Match purpose to product: Equipment Loans for ownership, Equipment Leases for lower payments and an end-of-term buyout, Refinancing & Sale-Leaseback to free working cash from owned assets.
   
   
2. Package the file
   Lenders will ask for business details, invoices/quotes, 3–6 months of bank statements, financials (or YTD), and proof of insurance readiness. If receivables or inventory are part of the collateral, see Asset-Based Lending.
   
   
3. Underwriting
   Credit teams evaluate cash flow (DSCR), collateral value, time in business, and credit history. They’ll size the advance (often as a % of purchase price or appraised value) and set term/price accordingly.
   
   
4. Offer & conditions
   You’ll receive terms: amount, rate, amortization/term, fees, security (specific liens or General Security Agreement), and often a personal guarantee (PG). If the payment looks tight, model alternatives in the calculator (e.g., extend term or add residual on a lease).
   
   
5. Security registration (PPSA) & insurance
   The lender files a PPSA registration over the collateral (sometimes blanket GSA). Proof of insurance with the lender as loss payee is typically required.
   
   
6. Funding & servicing
   After documents and registrations, funds disburse (or the seller is paid directly). You make fixed payments; you’ll keep financials/insurance current and comply with any covenants.
   
   
7. End-of-term options
   
   
   
   • Loan: you own the asset free and clear.
     
     
   • Lease: buy out (e.g., $10, 10%, or FMV), or upgrade/return.
     
     
   • Refinance: if you want to reduce payment or extend term, see Business Refinancing or a Term Loan.
     
     

What qualifies as collateral?

• Equipment & titled vehicles: trucks, trailers, excavators, forklifts, production machinery (confirm on Eligible Equipment).
  
  
• Receivables & inventory: via Asset-Based Lending when cash is tied up in AR/stock.
  
  
• Existing equipment: monetize with Refinancing & Sale-Leaseback to inject working capital while keeping assets in service.
  
  

For ongoing purchases all year, consider an Equipment Line of Credit to draw per project and pay interest only on what you use.

Structures at a glance (ownership, cost, flexibility)

Pricing: what drives your rate and term

• Collateral quality & resale: mainstream trucks/equipment usually price better than niche or fast-obsolescence gear.
  
  
• Time in business & credit: longer history and clean repayment lower risk.
  
  
• Cash flow (DSCR): stronger margins/supporting deposits justify longer terms or larger tickets.
  
  
• Structure: leases reduce monthly via residuals; loans build equity faster.
  
  
• Program type: bank or CSBFP can be competitive for eligible equipment and improvements.
  
  

Run side-by-side scenarios in the calculator (48 vs 60 vs 72 months, lease residuals, down payments) to see the cash-flow impact before you apply.

Secured vs. unsecured: when each wins

Choose secured when you need larger limits, lower pricing, and terms aligned to asset life. Choose unsecured when speed and flexibility matter more than maximum size, or when you don’t want liens. For revolving needs (inventory, payroll, marketing) consider a Line of Credit or Working Capital Loan. If customers pay slowly, Invoice/Freight Factoring can bridge gaps without adding term debt.

How to improve approval odds (and lower the payment)

• Match product to purpose. Asset → loan/lease; revolving → LOC/ABL.
  
  
• Right-size the term. Use the calculator to keep DSCR healthy.
  
  
• Provide clean docs. Quotes, serials/VINs, insurance, financials—organized and up to date.
  
  
• Consider a modest down payment or residual. Small levers can materially reduce the monthly.
  
  
• Plan the capital stack. If you’ll add AR/inventory financing later, set lien priorities up front.
  
  

Case study: Fabricator upgrades equipment without choking cash flow

Business: GTA metal fabricator (36 months in business)
Need: $165K for a used CNC + $40K ramp-up working capital
Initial issue: Bank term sheet required a blanket GSA and high PG; payments were tight during onboarding a new contract.

Structure with Mehmi:

• Lease on the CNC with a 10% buyout to lower monthly obligations.
  
  
• Small Working Capital Loan for materials.
  
  
• Preserved room for future Asset-Based Lending on AR once invoices started flowing.
  
  

Outcome: Equipment delivered on time, cash flow stayed positive, and the company refinanced to a lighter-covenant Term Loan after 12 months of clean pay history.

FAQ: Secured loans in Canada

Do I always need a personal guarantee (PG)?
Often for SMEs, yes. Strong DSCR, lower LTV, and clean history can support reduced or step-down PGs over time.

What’s a PPSA filing—and does it block other lenders?
It’s the security registration over your assets. A blanket GSA can crowd out future facilities; negotiate specific collateral when possible.

Can startups get secured loans?
Yes—especially when the asset has strong resale value. Consider Equipment Financing or CSBFP for eligible purchases.

How fast can secured deals fund?
With clean documents and standard assets, approvals can land within 24–48h; filings/insurance can add days. For urgent expenses, bridge with a Line of Credit.

What happens if I default?
The lender can enforce on the collateral under PPSA and a PG may apply to any shortfall. Protect yourself by right-sizing payments and keeping insurance current.

Is leasing really “secured” too?
Yes—leases carry a security interest, but payment math differs via residuals. Compare both in the calculator.

‍

Next steps

If you want a lender-style read on your file, we’ll model secured loan vs lease vs ABL against your cash flow and equipment plan—then package the cleanest approval path. Feel free to contact our credit analysts or pre-test payments now.

• Run numbers: Calculator
  
  
• Explore: Secured Loan, Equipment Loans, Equipment Leases, Asset-Based Lending
  
  
• Talk to us: Contact Us‍

• Mehmi also sells equipment directly—browse current Inventory and we can finance it in one workflow.