For a small and growing business, loans can be a helpful tool to maintain your business through cash flow problems and to help you expand. Offering collateral will often allow you to get a larger business loan or a lower interest rate from your lender. Collateral can be any valuable business asset, which can be claimed by the lender if you cannot repay the loan.
What Kind of Collateral Can Secure a Business Loan?
If you’re buying and of the following valuable items (or property), they could serve as your loan collateral:
- Real estate: Putting up your home or a commercial building, whether you already own it (have equity in the property) or you’re buying it, is a common type of asset-based business loan.
- Machinery or equipment: If your company needs to purchase heavy equipment or high-tech, specialized tools, you could offer these as loan collateral until you pay them off (by repaying the loan).
- Product components or inventory you plan to purchase: In this case, you use the parts, supplies, or business inventory, (the same inventory you’re planning to buy with the loan) as collateral for that loan. If your business is a dealership, seasonal business, or wholesaler/retailer, you might consider this option. This loan would allow you, for example, to stock up for the coming busy season.
- Your accounts payable or invoices: If you’re awaiting payment for past work, you can use the outstanding invoices as collateral for a cash advance. This is called invoice financing.
Why Do Businesses Apply for Collateralized Loans?
Beyond a better interest rate than some other financing options, the main benefit of a secured business loan is that you still have possession of the property you’re offering as collateral. You can use the collateral to earn money–while you are paying for it with the loan. Even businesses that are relatively new can qualify for this loan, since the value of the collateral is the main basis for the loan. The lender may still check your credit score and other facts about your business.
Contact Nations Capital Financing to learn more about your business loan options today!