Business Loan Collateral: What You Should Know

If you are going to apply for a business loan, be prepared to offer your lender some form of business loan collateral. Collateral instills confidence in a lender and demonstrates that you are serious about repaying your business loan.

What can be used as collateral?

Collateral are the assets that you offer a lender to secure your loan. It is what you are pledging to give the bank to pay your loan in the event of financial failure. Commonly assets used as collateral include vehicles, homes, equipment or home equity interests. In the event that you fail to pay back your loan, the lender will seize the assets that you used as collateral. Either by auction or direct sale, your assets will be sold and the proceeds will be applied to your loan balance.

You will need to gather current information regarding the value of your proposed collateral. The lender will take steps to assess the value through various sources. Make sure that your appraisals are current before presenting them to your lender. Value impressions can vary greatly between lenders and borrowers. In addition to your appraisals have comparative information available as well. This may include records of sales or classified ad for similar assets. This type of information may support your case and allow you to negotiate a higher value on your proposed collateral.