Using collateral to secure small business loans

Businesses at all levels will always need significant amounts of capital to grow and expand.

Nevertheless, actually getting hold of this capital in the first place can be significantly more difficult for smaller businesses. Which is compounded by the fact that these are also businesses that need to grow, expand and establish themselves more than businesses at any other levels.

When applying for secured loans for business purposes, the lender will no doubt take a detailed look at your current position and operations. Even after taking into account your credit history, balance sheet, equity, revenues, company history and reputation, there’s every chance they will still insist that the loan is guaranteed using collateral.

So with this in mind, what follows is just a few tips on how to effectively use your assets as collateral, in order to obtain the secured small business loans you may need:

1. Keep Detailed Records
First of all, you will only be able to use any given assets as collateral if you are able to prove to the lender how much they are worth. Which in turn means it is important to keep detailed records of your assets on the company balance sheets you keep. It doesn’t need to be particularly complicated, just some kind of evidence to support the value of the assets you intend to put up as collateral.

2. Know What Can Be Used as Collateral
Of course, it can also be helpful to know exactly what can be used as collateral in the first place, in order to avoid wasted time and effort. While property tends to be the single most commonly used form of collateral, it is worth bearing in mind that many lenders will only accept property if you are the outright owner. Or in other words, not if you are still paying off a mortgage or equivalent property loan. Along with property, personal savings may also be accepted as collateral, as may the deeds to land, certain valuable items of equipment and so on. It has a habit of differing from one lender to the next, so be sure to ask for specifics, rather than making assumptions.

3. Understand the Risks
For obvious reasons, you should never even consider signing yourself into a secured loan if you are not 100 per cent certain you will be able to keep up with the repayments. It is useful checking a secured loan calculator to get an indication of loan repayment amounts. Given the fact that you will no doubt be putting something important and valuable online, it just isn’t worth the risk if you have even a shred of doubt.

4. Negotiate When You Can
There are two ways of approaching the negotiation progress – one being through an experienced broker, the other being to go it alone. Needless to say, unless you have plenty of experience in exactly this kind of process, it is definitely in your best interests to seek secured loan services via a broker. Along with negotiating better rates, they may also bring to your attention alternatives to secured loans that may prove to be even more cost-effective.

5. Consider Peer-to-Peer Lending
Last up, if coming up with and putting the required collateral on the line simply isn’t a viable option for your business, an alternative to consider is peer-to-peer lending. For smaller loans in particular, peer loans have the potential to be somewhat simpler to obtain and are not quite as risky, when it comes to potential property and asset losses. Once again, the best advice is to speak to a broker, in order to get a good idea of all the available options.

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