Loans at Biltmore AZ

4 Tips To Secure A Small-Business Loan Using Collateral

It is a fundamental truth in the business world that you need cash to help grow your organization. Whether you’re a limited liability corporation, a sole proprietorship, or a start-up, getting a small business loan will be crucial for expanding your company’s potential. However, a lender will have to scrutinize both you and your business before they give you funds. This is to ensure that you are a viable borrower.

Most banks look at a company’s balance sheet, revenue, business credit, history, as well as the entrepreneur’s equity contributions. If you operate a healthy business and pass a credit check, most lenders will also require an additional, tangible guarantee that the loaned amount will be repaid, for example, in terms of collateral.

The U.S. Small Business Administration defines “collateral” as “a secondary means of repaying the loan.  The lender does not want to own the collateral and wants the business to succeed.  The borrower must put their assets (collateral) at risk or in other words have “skin in the game” in order to obtain the needed financing for their business.”

  1. Know What You Can Use As Collateral

Collateral ensures that a lender will be repaid by you or can recoup the money in another way, such as liquidating the offered assets. Collateral assets are owned by your company or by you personally. Real property, such as owner-occupied home, is the most common form of collateral. It can also be represented by your business’s cash savings, accounts receivable, equipment, inventory, or deposits.

  1. Keep Detailed Records Of Your Assets

You’ll be on the bank’s good side if you pay careful attention to all the relevant factors when presenting your business documents. Do not overcomplicate your records and keep your files neat and simple. Most of the time, an Excel spreadsheet with the basic line items is all you need.

  1. Negotiate If And When You Can

If you have a demonstrable history of good business credit, securing a loan with terms you’re comfortable with should be easy. Remember to compare offers from multiple lenders to get the best deal. Consider a higher loan-to-value ratio so you won’t have to put more collateral to cover the amount of the loan.

  1. Understand The Risks

There will be a risk of losing your assets if you default on your loan. Therefore, be sure to discuss this matter with a financial advisor and the people that could be affected by the loss. Learn the odds of the loan being successful as well as the risks involved. Be firm at rejecting unfair and abusive terms that could harm your business.

For the loan to be beneficial to both you and your business, you must choose the right assets to offer for the collateral. It’s also essential to be realistic when considering the possibility of defaulting on a loan. That’s because you might be in for some harsh consequences not only for your company but for your personal life as well.

You could also consider other forms of lending like Biltmore’s business loans. Tap the value of your property to generate cash for your company. Call us at 480-705-5626 (Chandler) or 480-991-5626 (Scottsdale) for more information.