Business Loans With Collateral: What are my Options?

Business Expansion

Jacques Famy Jr
Review By Todd Millman

Business Loans with Collateral refer to assets you are willing to put up to secure business credit, such as a small business loan. Business loans that use tangible assets as collateral are called secured loans (as opposed to unsecured loans). The advantage of a secured business loan is that they often have lower interest rates than unsecured loans, a higher chance of qualification, and more business loan options — which leads to better terms. Collateral or assets are not required for all business financing products.

Sometimes it's not about getting better terms for a business loan, like a better interest rate, but it may be about getting any business loan. The assets you use as collateral may be a gateway to approval. To reduce risk some business lenders will secure assets to help reduce risk. Upon default, these business lenders can seize and sell and use the money raised by selling the assets to repay the business loan. That's why business lenders love collateral; if the loan goes bad, they can reduce losses from defaults.

What Types of Collateral Is Acceptable for a Business Loan?

As mentioned, when you apply for business financing, lenders look to minimize risk by following a consistent and reliable formula, which always leads to the most important consideration: your ability to repay the business loan. Using assets to back your loan with collateral helps to ensure and influence business owners to repay for fear of losing those assets.

Traditional business lenders have similar definitions regarding what constitutes assets for collateral.

Examples of collateral (Assets) you can use to secure a business loan:

  • Business Equipment
  • Liquid Assets (Bank account assets, 401k, stocks, mutual funds, investments)
  • Residential Property
  • Commercial Property
  • Accounts Receivables (Invoices)
  • Purchase Orders
  • Future Sales Receivables
  • Blanket on all assets of a business
  • Cross Collateralization with other business entities
business loans with collateral

The 7 Most Common Considerations for a Business Loan with Collateral

Collateral is not "the be-all, end-all" regarding what will be considered when getting a business loan that requires collateral to pledge as security for the business loan. There are other considerations at play, just like your traditional business loan. Let's dive into those other considerations and what is considered collateral for a business loan.

Personal & Business Credit

The business owner's personal credit is always the most important evaluator tool in the business credit decision process, even with collateral involved. The history of the business owner's ability to manage their own personal credit directly correlates to how they will manage finances with their business. Business credit is also evaluated for liens, judgments, and State or Federal obligations that may interfere with the business lender's collection ability.

Revenue

Revenue volume consistency, as well as the number of deposits, helps business underwriters determine the risk of the business as well. If you are a business with volumes that decline or go up and down month to month, that may pose greater risks. The number of deposits and the frequency of business deposits may also pose a greater risk than a business that deposit's regularly. The monthly minimum amount of revenue required to keep a business open also can present a risk.

Profitability

As most business owners realize, having revenue doesn't mean you are profitable. Suppose the business is burdened with too many expenses and can't show a profit, this will prevent a business from obtaining traditional financing, despite how much revenue is coming in.

Time in Business

The length of time a business has been registered and operating demonstrates a track record lenders can look at to determine risk. Your prior experience is great, but will not be considered. You don't get credit for time served from a prior business.

Industry

Many different types of industries have a unique set of operational challenges. No two industries are created equal, and business lending underwriters recognize that they concentrate on specific industry challenges based on experience and performance. Through data collection and the analysis of the performance of business loans in the same industry, underwriters have gleaned the knowledge to consider the industry you are operating in and the risk.

Cash Flow (Business Bank Account Activity)

How you manage your business bank account and manage cash flow is a major factor in the underwriting process. Your bank statements can tell a story and how much stress the business has. A lot can be gleaned from reviewing the current cash flow. Business owners often make the mistake of waiting until there is a cash flow crunch, and they are operating with thin ledgers or even overdrafts and negative balance days. In many, but not all, cases, it may be too late to get business funding, collateral, or not!

Financial Statements

Some business financing products focus on long-term financial trends like the prior year's business tax returns, profit & loss, and the prior year's balance sheet. Lenders compare past performance to current performance by asking for the month-to-date profit & loss and balance sheet. Additionally, accounts receivable and payable reports may be requested to see a full picture that allows business lending underwriters to evaluate the risk of future projections.

What are the Pros and Cons of a Business Loan With Collateral?

Here are the pros and cons of small business loans with collateral.

Pros

  • Access to capital that traditional business loan options could deny without collateral.
  • Ability to raise more capital with collateral than without
  • The ability to get better rates and terms
  • Provides more business funding options

Cons

  • Can lock up and put at risk both personal and/or business assets that aren't worth risking.
  • Exposes you to more liability and loss if you default on a business loan
  • Risks personal property, not just business assets if a default were to occur

What Type of Lenders Offer Business Loans With Collateral?

  • Traditional banks
  • Private Lenders
  • Long-Term Business Lenders
  • Equipment Financing Companies
  • Invoice factoring Companies
  • Commercial Real Estate Lenders
  • The Small Business Administration (some products require collateral)
  • Private Lenders
  • Hard Money Business Lenders

What Are The Typical Terms and Product Overview of Business Loans with Collateral?

Rates: Interest rates starting at 4.5% up to Treasury index plus 1% to 2.75%.

Terms: 1 to 5 years can extend to 25 years if highly qualified

Fees: Origination Fees range from 1% to 3%

Payments: Monthly payments

Credit Standards: Must have good credit and deep credit history

Processing Times: At least one week and can be up to a month, depending on bank or product.

business loans with collateral

Frequently Asked Questions

Do I Need Collateral to Get a Business Loan? Can I Get A Business Loan Without Collateral?

You do not need collateral or assets to get a business loan. Providing collateral can get you better rates, terms, and, ultimately, more options, but it is not a requirement for all business financing products.

How Much Collateral Do Business Lenders Require?

This answer varies widely based on your chosen business financing product and the business lender providing the financing. Some business loans with collateral will require a complete blanket of all personal and business assets. Others will just require business assets or just the equipment you are purchasing. Read terms carefully and ask questions about what is covered for collateral.

Are Business Loans with Collateral difficult to obtain?

It is not difficult to find business funding with collateral. Don't worry; there are plenty of options for help accessing capital.

What Types of Business Loans Require Collateral?

  • Traditional Bank Business Loans
  • Long-Term Business Loans
  • (SBA Loans) Small Business Administration Loans (hard assets not required for all SBA programs)
  • Commercial Real Estate Loans
  • Equipment Financing
  • Inventory Financing

Can I qualify for a Business Loan with Collateral if I have bad credit?

You can get approved for business funding with Collateral with bad credit. Be aware the rates, costs, and terms will be affected by your credit risk and what can be offered to you.

Can I get a Business Loan with Collateral if I am a start-up business?

The short answer is yes. You can get a start-up business loan with collateral but it is limited to SBA Loans and Private business lenders.

Advice, Tips, and Warnings about Business Loans with Collateral

Collateral (assets) is definitely a consideration in reducing the risk of lending to a business. But when pledging your assets as collateral, you must take a step back and ensure that you are aware of the risks of doing that versus the reward of acquiring that business loan that requires certain assets for collateral. Do not jump into this business financing option lightly. Remember, the business lender can repossess those assets if you default on the business financing option. Think long and hard about your decision. We are not saying it is a bad idea. We are saying you just need to know the risks versus the rewards.

In recommending business loan products, just because these products are available doesn't mean you should take one. Look at all the other options available. Ask yourself the key questions you must always ask when getting a business loan for your business. What is my cost vs. benefit analysis look like? Is the business loan with required collateral worth the risk over the business financing option that does not require collateral? What are the long-term benefits of accessing this capital for my business?

If you ask the tough questions of yourself as a business owner and you are comfortable with your answers, then business loans with collateral required may be an excellent source to help your business grow!

business loans with collateral

How to Apply for a Business Loan with Collateral?

Applying for a loan with AdvancePoint Capital is as simple as a 1, 2, 3, 4 process. Start with this online form, fill out the short application page, wait a few hours for your approval, and get your money!

The fast, convenient, and straightforward way to get the money you need for your business – now! Get your Quote Today by filling out our simple form.

Jacques Famy Jr

Small Business Loan Calculators

Calculate your financing costs using our nifty calculators now.

advancepoint get quote now
advancepoint get quote now