How to Use Business Assets for Collateral Toward Financing
Sometimes, you need business financing quickly. Depending on your financial situation and the type of funding you need, you may be required to provide collateral for the lender. If you need fast financing, you can use your business assets to help you secure it, but it is important to consider the validity of your finances before doing so.
Know the Value of Your Assets
Unscrupulous lenders may try to convince you that your company’s assets are worth less than they really are, so you must know their real value before you try to use them as collateral. This way, you can be sure that you’re receiving the value you deserve on your loan and not just accepting what the lender tells you.
Read the Loan Terms Thoroughly
The biggest place that lenders pull the wool over a business owner’s eyes is in the loan terms on the contract. If you assume everything is correct and don’t read them thoroughly, you could find yourself paying lots of hidden fees or worse, losing your collateral altogether. It is also important to ensure you even have the right type of collateral. Some lenders are extremely particular about the type of funding they provide and for which kinds of collateral. Reading the terms first ensures you don’t spend time going through the application process only to be denied for not having the right collateral.
Consider the Pros and Cons of Using Collateral
Of course, there are pros and cons to using your business assets as collateral. One of the biggest benefits is that the right type of collateral can help you be approved for large funding amounts, even if your credit score doesn’t match what you might need otherwise. However, if it is extremely important to ensure you can meet the repayment terms and not lose vital business equipment. After all, if you can’t make your payment arrangements and end up losing your equipment to the lender, your entire business could need to halt operations, leading you further into debt and further into a low business credit score. If you can, provide a valuable asset but one that you can still operate without, if necessary.
Above everything else, ensure you research the lender well. If you don’t need cash quickly, your best bet is to go through a well-known, government-regulated financer like a traditional bank. Avoid other types of lenders when possible, as it is much easier for them to take advantage of new business owners.
