December is a very busy month of the year for most businesses. However, there are…
You’re a business owner. You want to grow your business. You are hoping to secure funding in an effort to do so. Does this sound like you? The truth is nearly every small business owner is in the same position. This is what makes collateral so important. Collateral is described as an item of value that a lender can seize from a borrower if he or she fails to repay a loan.
The bottom line is that if you wish to borrow money from a bank, you need collateral. Examples of worthwhile collateral include cash in a savings account, a car, a boat, a home, stocks, bonds and an insurance policy.
Here are three top reasons entrepreneurs are expected to have collateral handy:
1. Lenders view collateral as a safety net.
It reduces their risk when extending credit. This heightened confidence often results in more favourable terms and lower interest rates. By offering collateral, such as equipment, real estate or accounts receivable, you are demonstrating your commitment to your company’s success. This not only makes you a more attractive borrower but also helps you secure the financing you need to grow your business.
“Any bank or financial institution taking collateral for a loan is certainly concerned to ensure that the security taken is sufficient to cover the credit facilities that it has advanced,” informs Dentons.com, “The primary purpose of taking security is to minimise credit risk and, to the extent possible, obtain priority over other creditors in the event of the borrower’s bankruptcy or liquidation.”
2. Collateral boosts your borrowing capacity.
Collateral can significantly increase your chances of getting larger loans. It allows you to tap into greater amounts of capital, enabling you to undertake more substantial projects or investments. Without collateral, you might be limited to smaller loans, which can impede your company’s growth potential.
For instance, let’s suppose you are looking to expand your restaurant. Using your existing equipment or property as collateral can help you secure the funds needed to open a new location or renovate your current one. All the while, you can maintain a strong cash flow for daily operations.
3. It gives you enhanced flexibility with repayment.
When you have collateral backing your loans, lenders are often more flexible with your repayment terms. This means you can negotiate longer loan durations, smaller monthly payments or even grace periods during economic downturns. The security provided by collateral allows you to tailor the loan to your business’ specific needs.
With a collateral-backed loan, you can align your repayment schedule with your revenue streams, reducing the strain on your cash flow. This flexibility is invaluable for businesses that experience seasonal fluctuations in income.
Collateral is NOT needed to secure a merchant cash advance!
With Synergy Merchants’ unique merchant cash advance program, no collateral is ever necessary in order for you to be approved. This alternative source of funding has been helping Canadian business owners to grow their companies for decades. We’re sure we can help yours too! To learn more, please don’t hesitate to call us at 1-877-718-2026 or email us at firstname.lastname@example.org. You can also apply online for a free, no obligation quote!