Asset-Backed Finance: What is a Secured Loan and How Does It Leverage Your Collateral?

What is a Secured Loan?

For corporations and sophisticated enterprises, the path to capital often relies on Asset-Backed Finance. At the heart of this strategy is the Secured Loan, a fundamental banking instrument that typically offers better terms, higher limits, and lower interest rates compared to unsecured lending.

A Secured Loan is simply a credit facility or loan that is contractually guaranteed by an asset or assets (the ‘collateral’) owned by the borrower. This structure reduces the risk for the lender, as the asset can be legally seized and liquidated in the event of default. This is how a business can effectively leverage the value of its own balance sheet assets for Business Expansion.

The Core Mechanics of a Secured Loan

The mechanism grants the lender a legal interest, or ‘charge’, over specific assets to protect against borrower default.

1. Identifying Eligible Collateral

For corporate finance, collateral can take many forms:

• Fixed Assets: Commercial property, land, machinery, or heavy plant.
• Liquid Assets: Inventory, accounts receivable (debtors), or listed financial securities.
• Financial Instruments: Cash deposits or investment portfolios.

2. Establishing the Charge

The type of security registered against the asset defines the lender’s protection. These charges are usually documented in a debenture and registered (e.g., at Companies House in the UK) to provide public notice of the claim.

• Fixed Charge: Grants the lender priority claim over a specific, identifiable asset (e.g., a commercial building). The borrower cannot sell or dispose of this asset without the lender’s consent.
• Floating Charge: Covers a changing pool of assets, such as stock or debtors. The borrower is free to trade these assets until a default occurs, at which point the charge ‘crystallises’ and fixes to the assets currently held.

This system gives the lender a strong priority claim on the collateral in the event of insolvency. Importantly, many facilities use a mix of fixed and floating charges, with fixed-charge lenders ranking ahead of floating-charge lenders and unsecured creditors in the priority waterfall. This mechanism makes the transaction a reliable form of Asset-Backed Finance.

The Advantage of Collateral Lending

Collateral Lending offers distinct benefits crucial for Business Expansion and capital optimisation:

• Higher Limits: Lenders size facilities to a loan-to-value (LTV) ratio of the collateral, which varies by asset quality and can be materially below full market value.
• Lower Cost: By mitigating risk, the collateral allows lenders to offer significantly more competitive interest rates than unsecured facilities.
• Business Expansion: Companies can finance large projects, acquire new assets, or restructure expensive debt, all by effectively leveraging existing security.

The IntaCapital Swiss Distinction: Specialised Collateral Solutions

While a traditional Secured Loan requires a borrower to encumber their own assets, high-growth, asset-rich firms often require capital without directly tying up their core business collateral.

IntaCapital Swiss specialises in a more sophisticated form of Collateral Lending known as Collateral Transfer. This unique Structured Finance Solution involves the use of a third-party Bank Guarantee (BG) or Standby Letter of Credit (SBLC) as the collateral.

• The Difference: This means the borrowing firm receives the benefit of a secured loan (high limit, competitive rate) often without needing to register a Fixed Charge against its own core operating assets, because the primary security is the third-party Bank Guarantee or SBLC. It is crucial to note that the resulting bank facility remains a debt obligation to the borrower’s third-party lender.

By focusing on specialist solutions like Collateral Transfer, IntaCapital Swiss moves beyond conventional Asset-Backed Finance to deliver bespoke capital funding that truly optimises the client’s balance sheet structure.

Ready to Elevate Your Collateral Lending Strategy?

IntaCapital Swiss offers expertise in transforming your capital needs into powerful, secure financial arrangements.

Find out today how our secured loans and strategic Collateral Transfer facilities can optimise your fund’s capital needs. Contact our experts today.