5 Types of Collateral

As a business owner, there will always be a situation where your business will need a massive amount of financial help. During this period, even if you are trying to secure a business loan from a lender, it could result in you pledging collateral with your property.

Collateral acts as a security in the eyes of lenders, where it increases your chance of getting a loan. Lenders always undergo a lot of massive risk in granting loan access to business owners. But when you apply for a business loan with collateral, it assures the lending company that you are will to risk something too in getting what you want.

It’s essential for lenders to always accept loan applications with collateral, unlike people without insurance, because they might end up not paying back. Most of the time, it’s not their intention not to repay the loan; it might be because they encountered business failure.

Even as that the lender suffers the loss being the reason why they value collateral. Using collateral to apply for a loan will give the lender an authority to seize your property when the loan defaults, and you are unable to payback.

Nowadays, before a loan can be granted, the lenders make sure that the borrower also has something to lose because it’s a dangerous game for them. Although people aspiring for a loan offer often wonder about what can be used as collateral.

Here are the five types of collateral;

1. Assets/properties

Your assets matter a lot, whether it’s a house or land property; lenders will be willing to take it as a collateral. Depending on the worth of the property, you will quickly get a small business loan by using it as collateral, especially when the owner has access to equity. The main reason why lenders prefer this type of asset is because real estate properties always retain their value even for a long time.

There are other things that you can use as collateral, but using a real estate property will get you a good deal. It will take even the amount you will receive as well as giving you an extended repayment date. But it all depends on whether you are ready to risk your property to secure a loan.

2. Inventory

Your inventory can get you a good loan offer depending on the type of business products you sell. When you have a lot of stock in your business inventory, you can use it as collateral in requesting for a loan.

Although the lender might have a hard time granting your loan offer depending on the value of what you have in store. But if it’s a valuable product that you have in your inventory, you are likely to get a good offer with fast approval.

The inventory loan offer works when the business owner requests a loan to buy profitable products, which will later be resold to payback. The lender will have to evaluate the value of the products as well as your business determining whether you be able to sell it off and repay before the due date. If the lender observes your offer to be profitable, your offer will be accepted.

3. Cash

Yes, you heard it right, you can also use some money to secure a loan offer. As a business owner, you can use your business savings accounts to obtain a reasonable loan offer depending on the value you have on your account. It will serve as a collateral to the letter in granting you a quick loan offer.

Lenders prefer this type of insurance because they won’t go through stress in obtaining repayment when you fail to pay on time. They can easily claim the money on your business account when the loan defaults, and you are yet to pay.

4. Invoice

If you are a business owner that follows the trend of giving your customers the 30+ days invoice payment extension. It might affect your business condition, forcing you to borrow a loan. The lender will evaluate the documentation of those customers owing you while using it as collateral to grant you loan access.

5. Blanket liens

Due to the rapid improvement in civilization, lenders make the use of Lien in granting business owner’s loan offer. It serves as an agreement between the business owner and lender, allowing them to sue your company when loan defaults and you haven’t made a repayment yet. It’s the best option for lenders today because they won’t go through the risk of losing their funds because of the initial agreement.