Collateral is any kind of hard asset which is acceptable to a lender as a form of security in exchange for a cash loan. In many cases, collateral is required in a business loan, but that’s not always true, and it will generally depend on which lender you’re involved with and the type of loan you’re applying for. For the most part, traditional lenders like banks will generally require some form of collateral before they will extend a business loan to an individual. You’re more likely to be able to obtain a business loan without collateral from an online alternative lender. When you do have to provide collateral, here’s what you can expect in terms of the value of your collateral.
How Much Collateral Is Needed?
Before any lender agrees to put cash in your hands, they will always take a careful review of your personal and business finances to see whether you’re a good bet for repaying any loan provided to you. What this boils down to is determining how creditworthy you are, and whether you can be trusted to make monthly payments so as to pay off the loan you get.
Lenders will take a look at a great many aspects about your company’s processes, including your revenue history, your balance sheet, and your company equity. After reviewing all these sources of information, a lender will make some kind of determination on whether or not collateral is required as a form of security for your loan.
Exactly what a lender will accept as collateral for the loan will depend on the type of assets that you have available, as well as the value of each of these assets. It could be that some property you own will be used as collateral, or it could be equipment. In some cases, your cash savings might be acceptable as a form of collateral to a lender.
Other forms of collateral might be your company invoices or the amount of inventory you have built up. If an extraordinary amount of collateral is called for by a lender, they might insist on a blanket lien, which would entitle them to claim any or all of your assets if you should default on repaying the money you borrowed.
Does Your Company Need a Business Loan?
If so, we’d like to hear from you at Pendleton Commercial Financing. We provide funding to a good number of small businesses, often involving collateral and sometimes without collateral. Let’s discuss some options which might be available to you for securing a small business loan.