What Collateral Do You Need For A Secured Business Loan?

Posted by Emma Robison on Feb 27, 2020 9:19:29 AM
Emma Robison
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What Collateral Do You Need For A Secured Business Loan?

Most businesses are keen to grow as part of their natural development. Expansion requires investment in new assets, new staff or premises. To raise capital for this, most business owners will consider a secured business loan as an option. Secured business loans tend to be larger cash sums, used to finance high-value equipment or multi-tiered expansion strategies. They are also an option for businesses needing lower sums that find it hard to get an unsecured loan. This may be due to having a lower credit rating, a short trading history, or insufficient capital and assets in the business to offset the lending risk.

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Before applying for a business loan, it’s worth taking the time to know what requirements lenders stipulate. As well as looking at the loan terms, such as the interest rates, repayment figures and length of loan, it pays to research the types of collateral the lender will accept. All secured loans need collateral, as this reduces the risk to the lender should the borrower default on repayments. The size of the loan offered, the repayment terms, and interest rate, will depend on the value of the business collateral.

Business Collateral

Collateral can effectively refer to any asset or property of value that belongs to the business (subject to the lender’s criteria). The assets act as a guarantee to the lender, therefore the lender can seize the collateral if the loan repayment schedule is not kept to. Since business collateral mitigates risk to the lender, valuable assets have benefits. Strong collateral can mean a wider choice of loans with more competitive interest rates.

Acceptable collateral for a business loan may include any business asset of value. If an item can be sold off in part payment in the event of a defaulted loan, a lender may consider the asset as collateral. Depending on the type of business, a range of business equipment or machinery may be used as collateral. If the business premises are owned, they are a significant asset to be taken into account. Business vehicles and inventory can also be included.

Personal Assets And Guarantees

Depending on the value of the business assets, a lender may also demand a personal guarantee from the business owner and/or directors. This means that personal assets may be included as collateral against the loan. In such instances property, vehicles and other valuables could be sold off to pay a defaulted loan.

When applying for a secured loan you could be asked to supply a business plan and financial forecasts, demonstrating the viability of the business and confirming that the amount the business venture requires can be repaid in full, including interest within the required term.

To access the best value loans, why not work with a specialist independent broker? Business Finance Solutions (UK) Ltd is a trusted company that is authorised and regulated by the Financial Conduct Authority. We offer a free consultation to discuss your business finance needs, so give us a call today to arrange a suitable appointment.

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Topics: Business Loans, Business Finance

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