Types of collaterals that can be used to avail a business loan

What is a business loan collateral?

To kick start a business, many businesspeople start off by taking a business loan as it is an easy way of getting instant cash. As the business loan is a secured type of loan, the borrower has to put up something as a collateral to get approved of the money. Then the bank will provide loan amount based upon the worth of the asset value. There are a number of assets or properties that you can list down and use them as business loan collaterals.

Let’s look at the types of collaterals that can be used to avail the business loan

1. Real property: Do you own a property or an asset? Then you have a chance to take up a loan for your business by putting the asset as a collateral. Put up your property as surety only if you think you can repay back the amount, if you default the amount then the lender will seize your property. This is because you have already given permission to the lender to seize the property if you default on your loan amount. Putting your property as collateral is a very risk-taking job, think what if you can’t pay back the money, what if your business does not bring in enough money, just make sure you know all the risks associated with putting your asset as collateral.
2. Invoice financing: In every business, we have customers who do not pay the invoices on time and they are the ones who interrupt our business cash flows. But these unpaid invoices can also be your credit source, as you can put these invoices as collateral in the bank and take the amount worth the invoices. Though in return you have to pay a fee to the bank, you will get an immediate cash infusion into the business which you can use it for various purposes like building inventory, paying salaries, investing in small projects, etc.
3. Equipment: If your business is a product based industry, then you can put your equipment or inventory as collateral, the loan amount that you receive might be lesser compared to the amount that you receive when you put an asset as collateral.

1. Cash savings: Your cash savings can also be your crediting source. You can put up your savings account as collateral, this will make the process easier for the banks as they can get their money instantly if you tend to default the amount. If the borrower defaults the loan amount, then the bank won’t have to go through the process of selling the property’s or assets of the borrower.
2. Blanket Lien: This typically comes in two forms, one is ‘Lien on accounts receivable’ and another one is ‘Lien on inventory’. It is the list of properties that the lender can collect from the borrower if the lender fails to pay back the loan amount. This blanket lien covers all the assets that the borrower is currently owning. If the borrower has defaulted the loan amount, then the lender has the right to sue the business and collect the assets which are specified in the legal claim.

It is the duty of the borrower to carefully check and consider what all risks are involved with placing the assets as collateral and what are the consequences if we default the loan amount.

Sign on the dotted lines only if you think you can repay the amount because putting your asset as collateral is like risking your asset.

Hello, I am Alvina working as a content writer in Hyderabad.