If you’re thinking about a business loan, you may worry about having collateral. Business loans are often secured by promising an asset, or collateral, in case you default on your loan. By offering this promise, it reduces the risk to the lender which gives you more opportunities for financing. Collateral is often misunderstood. Your business may have assets that you aren’t aware of.
What Types of Collateral Can Your Business Use?
The lender wants an asset that can be quickly converted into cash to cover your loan. While you may be thinking about real estate or equipment as collateral, you could also use a deposit account, CDs or stock. Real estate is harder to liquidate than CDs or stock, but it is a valuable resource. Your equipment or inventory may be even harder to convert into cash because there’s no guarantee of the value of your inventory at the time of the default. Today’s inventory that acts as collateral may not be worth anything two years down the road.
How Much Collateral Do You Need for a Loan?
Lenders can do different things when it comes to the amount of collateral that you need for a loan. Generally, you’ll have to put up more property than the loan is worth. You may need a real estate property worth $100,000 or more to get an $80,000 loan. Your lender will go over the loan-to-value ratio based on the collateral that you have.
Your credit score, business or personal, may be evaluated as part of the loan, even if you have plenty of collateral. You may be required to have a good credit score to get higher LTV ratios. Collateral can help you get a loan with a lower credit score, but it may not. It depends on the lender, the length of time you’ve been in business and what you plan to do with your loan.
Norus Capital offers business loans for your business. Contact us today for more information.