Secured Loan

A secured loan is a loan where the lender has a special claim on particular assets or revenues of the company, providing extra protection in case the loan is unpaid. This type of loan often has lower interest rates due to the reduced risk for the lender.

Example/Scenario: A construction firm takes out a £500,000 loan from a bank and pledges its machinery as collateral. If the firm defaults on the loan, the bank can seize and sell the machinery to recover the unpaid amount. This arrangement reduces the lender's risk and often results in favourable loan terms for the borrower.