What Can Be Used As Collateral When Applying For A Loan?

If you’ve ever entered a bank in an effort to secure a loan for your business, you are likely all too familiar with the terms “credit check” and “collateral”. In a blog from last week, we listed a number of ways you can avoid getting bad credit. We recommend you check it out, if you haven’t already. Learning how to establish a strong credit history will go long way with banks. In addition to good credit, however, you’ll also need collateral in order to please a bank’s loan officer.

What is collateral?

Collateral is something of value that you can put on the line in the event you default on a loan. In other words, you’re required to risk something that belongs to you so the bank can feel safe that it won’t lose out by lending you money.

“Lenders would prefer, above all else, to get their money back,” explains Justin Pritchard on TheBalance.com, “They don’t want to bring legal action against you, so they try to use collateral as a safeguard. They don’t even want to deal with your collateral (they’re not in the business of owning, renting, and selling houses), but that is often the easiest form of protection.”

What can be used as collateral? As Pritchard lists, real estate, automobiles, cash accounts, machinery, equipment, investments, insurance policies, valuables, collectibles and future payments from customers can all be used as collateral. Arguably the most popular, however, is real estate.

Your home.

As Elyssa Kirkham notes on StudentLoanHero.com, “a home or real estate property is one of the most common forms of collateral for secured loans. For example, mortgages are set up as loans secured by the property. That’s why a bank can foreclose on a homeowner who has defaulted on a mortgage…Of course, your home is also one of your most important assets. And you should fiercely protect it.”

Kirkham goes on to warn potential borrowers that it’s important to have affordable loan payments when loans are secured by their homes. If payments aren’t made in the correct amounts in a timely manner, a person could lose the equity he/she has accumulated, or even the worse, the home itself.

Your vehicle.

Do you own a car, truck, van or even a boat? If so, you have another common form of secured loan collateral. This valuable asset of yours can also be requested to be put on the line during the process of approving your loan application. Kirkham cautions, however, that if you use your vehicle as collateral, you avoid car title loans.

“These usually have high APRs (think 100% or higher)…and short repayment periods of 15 to 30 days,” she informs, “The combination of high fees and short repayment periods make these a very high-cost way to borrow.”

Just like with your credit score, you don’t have to even think about collateral when applying to Synergy Merchants’ unique merchant cash advance program. No credit checks and no collateral is ever necessary in order for you to be approved! For more information, please don’t hesitate to call us at 1-877-718-2026 or email us at info@synergymerchants.com. You can also apply online for a free, no obligation quote!