What are collateral business loans, and what assets you need to leverage to get one? Many borrowers aren’t sure if they need to provide collateral and, if so, what happens to their assets if they miss a loan payment. To help unravel this confusion, here is a high-level overview that we can call “Collateral Business Loans 101”. To make things even clearer, we’ll break this down into 5 lessons:
Collateral refers to tangible assets (like equipment and buildings) and intangible assets (like cash and securities) that borrowers use to obtain a secured business loan. Depending on the loan agreement, collateral can be comprised of business assets, personal assets, or often a mix of both.
The lender determines collateral valuation, and it is paid for by the borrower as an up-front cost. The process can be contentious and controversial, because many lenders — and especially banks — are notorious for under-valuing collateral.
For example, a piece of industrial equipment that is clearly worth $100,000 may be valued for collateral purposes at $75,000 — or even lower. Why do lenders lean towards undervaluation. Because it further reduces their risk, since it means borrowers must pledge even more collateral to secure the loan.
In the event of a missed payment, lenders reserve the right to immediately take possession of collateral and liquidate it accordingly to recover the debt. To make this process faster and less costly, some lenders insist on collateral in cash, or other easy-to-liquidate asset(s) like stocks, bonds, precious metals, etc.
Yes! There are a variety of business loans that do not require any collateral at all. They’re called unsecured business loans, and they’re very easy to get! Unsecured business loans do not require any collateral at all, whereas secured business loans do. Here are a few examples:
These are all financing options that are popular with business owners that do not wish to put their personal or business assets at risk in case of default.
Naturally, borrowers must commit to paying back their loan in full and on time. However, they are not at-risk of having their pledged assets (since there are none) taken over and liquidated by lenders. For business owners, peace of mind is not just valuable, but vital in keeping operations running smoothly, and reducing risk of losing valued assets.
Yes! NBC approves 90%+ of all business owners who apply for collateral business loans–and unsecured business loans as well–regardless of their credit score and extensive financial history. That isn’t something you see every day, and it’s something you certainly won’t find through banks or any other kind of traditional lender.\
While unsecured business loans may reduce risk for business owners, they increase risk for banks and lenders to give capital to borrowers. Without any backing at all in case of a borrower’s foreclosure, lenders are more hesitant to give options with terms as agreeable as their secured counterparts. This often results in offering business financing options with worse terms than they’d get if they offered some form of collateral.
That being said, the advantages of leveraging assets are obvious: larger offers, longer terms, and lower rates… at least with most banks and lenders. That’s where we come in!
While it’s true that you have a greater chance of getting business loans with the underwriting you’re after through leveraging collateral, that doesn’t mean that you can’t also get the perfect funding option for you without doing so at NBC! No matter what your funding needs may be, and how much or how little collateral you’re willing to leverage, NBC finds the perfect financing for their customers, no matter the odds.
Simply call (877) 482-3008 to speak with a member of our team, or fill out our simple 1-minute application online to get the ball rolling, and receive secured or unsecured business loan of your choice in as little as 24 hours!
We are excited to learn about your business financing needs and goals, help you understand the details of our unsecured loan products (we offer several), and answer all of your questions clearly, honestly, and without any confusing jargon.
National Business Capital is the #1 FinTech marketplace offering small business loans and services. Harnessing the power of smart technology and even smarter people, we’ve streamlined the approval process to secure over $1 billion in financing for small business owners to date.
Our expert Business Financing Advisors work within our 75+ Lender Marketplace in real time to give you easy access to the best low-interest SBA loans, short and long-term loans and business lines of credit, as well as a full suite of revenue-driving business services.
We strengthen local communities one small business loan at a time. For every deal we fund, we donate 10 meals to Feeding America!
Megan is passionate about helping business owners along their journey - providing them with relevant content they can use in their day-to-day operations.