As a business owner, you know cash can sometimes be scarce. If you want to apply for a business loan or secured line of credit, you likely need to put up some collateral. Here are four types of collateral that are common with most business loans.
You have probably invested a significant amount of money into purchasing equipment for your business. In fact, some of the equipment you have may be worth thousands of dollars. As such, you may want to use the business equipment as collateral for a loan. You should, though, keep a couple things in mind. First, if your lose your equipment after defaulting on a business loan, you may not be able to stay in business. Also, since equipment depreciates over time, your banker may determine it to be worth less than you think.
If you have an excellent product, your customers likely want to buy it. Bankers may be interested in your inventory as well. When using your inventory as collateral, expect to have a representative from the bank value it. As you may suspect, you may think your inventory is worth more than the banker does. Still, if you need cash quickly, using inventory as collateral may make good sense.
Business owners use property to secure business loans all the time. If you want to expand your warehouse, obtain a line of credit or grow your business, you may be able to use your commercial real estate as collateral. You may also be able to use your personal residence as collateral to secure a commercial loan. This is a riskier proposition, however, as you could lose your home if your business venture fails.
4. Accounts Receivable
Finally, outstanding invoices are often easy collateral for business owners. When you send bills to customers, you assume they will pay them. Even though you have not yet received cash for the sale, your accounts receivable is valuable. You may be able to use the promise of future payment as collateral to obtain a business loan. Moreover, you may be eligible for novel types of funding if you are willing to put your accounts receivable on the line.
When your company needs to raise some cash, you need to bring something to the table. When applying for business loans or secured lines of credit, you usually must come up with some collateral. While all loans are different, you should be prepared to offer some collateral in exchange for cash.