What Collateral Is Needed to Secure a Loan?
Whether your business is just getting started or you’re ready to invest and expand, loans may be available to help you reach your goals.
Business loans can usually be secured with collateral supplied by the business owner. Collateral is any item of value that the borrower promises to the lender for the loan’s duration.
This process can be an excellent way for small businesses to get the funds they need. Plus, collateral may lower the loan’s interest rate. However, if you default on your payments, the lender can seize your collateral and sell it to pay off the loan.
Putting up collateral can reduce the risk of the bank losing money on the loan. The value of the assets varies based on the type of collateral (personal, real estate, equipment) and other factors such as your credit rating.
What kind of collateral is acceptable for business loans?
Common acceptable forms of collateral and their average value include:
- Real estate – up to 100%
- Personal assets – up to 80%
- Vehicles – up to 100%
- Equipment – up to 100%
- Accounts receivable – up to 80%
- Inventory – up to 50%
Your collateral may need to equal up to 100% of the money borrowed. In some cases, your collateral could be appraised at 50–80% of its original value to factor in depreciation.
But not all collateral has equal value. For example, items like software and electronic devices depreciate so quickly they don’t qualify as adequate collateral assets.
Blanket liens can be a risky agreement for borrowers because it gives the lender the power to seize all or multiple assets to satisfy the loan should you default. However, a blanket lien could lower your interest rate and result in a more affordable loan option for the borrower.
If you choose a blanket lien, be sure to discuss the details at great length with your lender and any business stakeholders.
Business loans can be a successful way for your company to access the resources it needs to thrive. We understand a loan is a big decision, and our specialists are available to answer any questions you may have. When you’re ready to get started, we are here to help. Contact us to learn more.