Secured loan definition

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Secured loans (also known as “senior loans”) are usually the safest and thus the least profitable type of capital. The loan is secured against the collateral, which is usually a mortgage on the property, pledge on the assets of the company or some other type of collateral.

With this type of loan investor is the first in line to receive their payout, and in case of any problems the collateral can be liquidated to minimize losses.

However, the existence of collateral means that the risk (and therefore the yield) is lower and one should definitely investigate the asset that is offered as collateral. At the same time, investors should acknowledge that the collateral is the last resort for repayments and good projects should generate enough cash flow to repay the attracted capital without a need to liquidate the collateral.

Here is a secured loan example:

Read more about other capital types:

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