When it comes to business loans, banks and other lenders usually offer two types. They include those that require putting down collateral and those that do not. Collateral is a piece of valuable personal property such as real estate or a vehicle that the lender can repossess from you if you happen to default on the loan. Because collateral lowers the lender’s risk, it typically comes with a lower interest rate and more favorable repayment terms than business loans without collateral. Here are the four most common types of collateral put up by business owners to obtain a loan:
- Equipment: This can be anything from computers to heavy machinery. An important thing to keep in mind is that the collateral you offer must have a decent current market value and demand sufficient enough that someone would buy it. If you’re having trouble deciding between different items, ask the lender to evaluate them to help you decide.
- Inventory: This is the most popular type of collateral for business loans today. However, you need to consider that you would risk losing it if you cannot repay the loan. That could make it difficult for you to continue operating your business if you depend on the sale of inventory for most of your company revenue.
- Invoices: If you are waiting on payment of large accounts receivable invoices, you might consider offering them as collateral in exchange for prompt funding from a business loan. Should you default, the lender now owns the invoices and will handle billing and collection activities with your customer.
- Real estate: You could consider this form of collateral if you own a home and feel comfortable with the small risk of losing it. Real estate is often a good choice of collateral for larger loans because of the relatively high resale value.
Please contact Magis Funding with additional questions about business loans with collateral or to learn more about our alternative financing options.