Getting a business loan can mean asking a financial institution for a substantial amount of money; which is why it makes sense for them to find concrete ways to offset some of that risk.
This is where collateral comes in. Collateral refers to any assets that the borrower has that are valuable enough to secure the loan. These assets can include everything from machinery to real estate, or anything else that can be sold quickly should the borrower default.
Is Collateral Always Required?
Some small business owners may not have sufficient secure assets to use as collateral for a business loan. This can make it difficult to get approved for the amount they need.
However, collateral is only one part of the risk assessment process. If a borrower has an otherwise strong credit profile and established cash flow, the SBA may be willing to work with them.
Although, it’s always better to bring more than just a high credit score to the table when asking any lender for a significant sum.
Different Types of Collateral
Not all collateral is created equal. Secure assets are things owned by the business that can be sold for a cash amount greater than the amount of the loan. A bank may also consider a general lien in place of specific assets, allowing them to collect any assets owned by the business in case of default.
Secure assets are appraised, and the amount is evaluated using the loan to value ratio. Banks will then decide how much of that value to loan to the borrower. A general lien isn’t held to the same ratio, making these loans easier and faster to get.
In short, it’s safe to say that the majority of business loans will require some sort of collateral. So, if you’re considering a business loan, now would be a good time to take a careful inventory of your assets.
We Can Help
Still, have questions? The professionals at OneClick Commercial Funding are here to help! Contact us today for more information on how we can help you get the funds you need to grow the business you deserve!