Lenders sometimes require real estate, equipment, or anything else under your business’ name that has cash value as collateral for your business loan. The amount of collateral depends on the amount of your loan. Generally, they require collateral that’s at least worth as much as your loan amount. This way, they’d be able to recover their money if you’re unable to repay your loan.
Types of collateral that lenders accept
- Real property – Real estate’s value usually remains the same or increases. That’s why lenders are happy to take either personal or commercial property as collateral.
- Equipment – This is used as collateral for equipment loans. However, many lenders also accept this as collateral for other unrelated loans.
- Inventory – Another way to secure your loan is by using the inventory that you’re buying. An auditor may need to appraise your inventory’s value before your lender accepts it as collateral.
- Accounts receivables – If the cash flow of your business is tied up in your customer invoices, your lender may accept accounts receivables as collateral. Most of them like this because this can be easily converted into cash.
- Blanket lien – This has a low risk for your creditor but has a great risk for your business. Using this as collateral allows your lender to repossess any asset under your business’ name once your loan goes default.
- Cash – This type of collateral lets you use your business’ savings account as security. This puts your business in a lower-risk bracket because of the cash’ highly liquid nature. This also means a lower interest rate.
- Personal assets – If you have a startup business that doesn’t have many assets, you can use your home, car, or other investments as collateral. However, you have to be cautious because if your loan goes into default, you’ll lose not just your business but your valuable items too.
