Loans

Types of Collateral for Business Loan Application

Many people are thinking of starting their own business. Some have already finalized all the necessary documents and permits before launching their start-up companies while others are still in the planning stages. There might be a few, of course, that may have trouble with the initial stages.

There are all sorts of problems they may encounter. However, the most common one would be the financial aspect of starting a business; they could be lacking funds. If you belong to this group of people, then you might want to consider taking a business loans.

A business loan will assist you in your needs to start your own business. You could use it to purchase (or rent) an office, the equipment needed to keep it running, or even so you have something to pay off your employees. It all comes down to you on how you use it.

Of course, there are a few hurdles you need to get over before getting a loan, such as what type of collateral are you willing to put down on your application?

To give you some insights into the different types of collateral, we listed some of them below.

Property

One of the most common types of collateral is property—more specifically homes.

Banks and loan providers see it as a great guarantee for you to put in a readily available asset. However, do take into account that once you are unable to pay off your debt, having this taken from you will negatively affect your finances.

Aside from homes, you may also declare your motorcycle, car, and equipment as collateral.

Cash Secured Loan

Another type of collateral you can declare to a loan provider is a cash secured loan (a.k.a savings secured loan). This could be made possible if you are applying for a loan in the same bank where your account is also stored.

Once you are unable to pay off the loan, they could liquidate money from your account.

Inventory Financing

Your business’ inventory could also be listed down as collateral to your loan. Of course, this would mean that the bank or another loan provider will have the rights to seize them if you cannot meet your loan payments. They would, then, be sold at a later date. The money made from their sale would be taken by the provider.

Invoice Collateral

Lenders also accept unpaid invoices as collateral.

Essentially, this means that all the invoice you are going to receive will automatically become the payment for your loan. This is a great option for those planning to take a business loan because the amount you need to pay will be based on the money coming your way.

Blanket Liens

Blanket liens are a type of collateral that provides lenders the claim to sell off your business assets. This would happen when you are unable to pay off an outstanding loan.

Takeaway:

Listed above are the different types of collateral to secure a loan. Before you decide which one you are going to offer your lender, do consider the pros and cons of each one of them.

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