Are you a small business owner? If so, then you understand the importance of having enough capital to keep your operation up and running.
After all, it’s expensive to maintain commercial office space, keep the lights on, and pay your staff. That’s why you need to make sure you have a source of funding so that you never run out of cash.
But what do you do when your operating capital starts to run low? You’ll need a small business loan.
This article takes a look at the types of collateral needed to secure a loan. Keep reading to get the inside scoop on collateral loans so that you won’t have to worry about risking an interruption in day to day operations.
1. Real Estate
Your first option to use as collateral to qualify for a loan is real estate. This is a popular form of collateral with lenders because real estate tends to increase in value over time, thus there’s limited risk involved for them.
The major drawback is that the lender could seize the property if you default on the loan, making the situation extremely complicated. So while this might seem like an easy way to secure the money you desperately need, you need to understand the full extent of the risk you’re taking.
2. Inventory
You can also use the inventory that you’ve purchased as collateral against the amount of money you’re borrowing. This can work in two ways:
You can ask for a secured loan from a lender, or you can get financing from the supplier of your inventory.
Just keep in mind that the lender will likely require to have the inventory audited before approving the loan.
3. Personal Assets
Next, let’s discuss your personal assets.
It’s no secret that lending institutions are more than happy to accept personal assets as collateral against a small business loan. The key is to understand the risk involved for you.
This is an ideal way to qualify for a loan when you have nothing else to offer and haven’t yet developed a trusted relationship with the lender. But this option also carried tremendous risk. After all, you will lose your assets if you fail to make payments and are unable to repay the loan in full.
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4. Equipment
You can also use equipment as collateral. This could be anything from forklifts to computer equipment to shop tools. In other words, they will take anything thing of value owned by your business.
5. Blanket Lien
What is a blanket lien? This collateral option covers a wide variety of assets.
When you agree to a blanket lien, you’re giving the lender the right to absolutely anything owned by your business, including real estate, inventory, and bank accounts. This puts you at a major disadvantage in several ways, including risking all your assets if you default, plus you’ll likely be unable to secure loans from other lenders.
A Guide to the Types of Collateral Required to Secure a Small Business Loan
Cash flow is important for keeping your business up and running. Fortunately, this list of the different types of collateral will help you understand the best option when applying for a loan.
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