What Types Of Collateral Do Banks Expect Business Owners To Risk?

Are you looking to make a smash in your industry? Do you have plans to take your business to the next level and make it stand out from all of its competitors? If so, the Synergy Merchants team applauds you. We are huge proponents of entrepreneurs growing and expanding their brands. We are also well aware of hard it can be for small business owners to secure business loans from banks in order to make their dreams come true.

Just one of the many requirements you’ll be asked for, during the application process, is collateral. Collateral is generally defined as an asset that a borrower uses to secure a loan. It can take the form of a physical asset, such as a car or home. As well, it could be a financial asset, like investments or cash. What are the most popular forms of collateral that business owners are expected to offer?

Real estate.

We’re talking commercial properties, residential properties or land. Banks typically prefer real estate that has a stable value and can be easily liquidated, if needed. You’ll likely be asked to provide documentation proving ownership and current market value. As you can imagine, putting your house on the line for your business loan application can be a scary undertaking. No one wants to lose their home.

“Property holdings and real estate are incredibly popular collateral choices for business owners,” affirms Jacques Famy Jr of AdvancePoint Capital, “Using real estate as collateral is common with a personal loan or mortgage. Financial institutions find real estate to be an attractive kind of collateral because retaining property values over time is typically manageable with real estate.”

Inventory.

What tangible goods do you have in stock? Your bank will evaluate the value of your inventory as well as its marketability. Perishable or obsolete inventory will not likely be accepted as collateral. Inventory management systems and regular audits can help you to maintain accurate records for loan purposes.

“Inventory doesn’t always tick all the boxes that make for a useful collateral source – more specifically, your lender won’t always deem your inventory equal to the value of your loan, especially when taking depreciation into account,” warns Meredith Wood of Fundera, “To vet your inventory’s current and projected worth, a lender might send out a third-party auditor to value your inventory in person.” 

Business equipment.

We’re talking machinery, vehicles or technology that your business may use to carry on its day-to-day functions. The value of your business equipment would be assessed based on its market value and condition. To reiterate, the equipment must be essential to the operation of your business and have a resale value that the bank considers sufficient.

“Secured business loans allow you to maintain and repair machinery or make an update to modernized equipment systems,” informs Famy Jr, “Using machinery as collateral for business loans is the best route for industries that rely on heavy machinery to run processes efficiently.”

With Synergy Merchants’ unique merchant cash advance program, you don’t need any collateral in order for you to be approved. Our program enables you to get your hands on the extra working capital your business needs within 24 hours! To learn more, 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!