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What type of collateral is needed for a loan?

office23648847.jpgWould you like to acquire a loan for your small business? When you head to lenders to find out what type of lending options are available for your company, you will quickly find out that not every lender is willing to offer you the money you need based on your lack of business experience, lack of collateral, or general weariness about your small business. A lot of business owners struggle to acquire the funding they need for a loan to get their small business up and running as lenders need something that will reduce the amount of risk you pose to their company.

Many borrowers leave the banks frustrated because they are unable to acquire the funds they need. Typically you will need to supply some type of collateral in order to secure the loan so you can get your small business up and running. What type of collateral are lenders looking for and what type of collateral do you have that will allow you to secure the loan?

When a lender asks for collateral they are usually referring to your real estate properties and investments, industrial equipment, or business machinery. Some lenders will provide a loan and use your existing business items as collateral like your cash flow, accounts receivables, inventory, or office equipment. However the banks that are willing to accept the latter usually don't provide you with big loans and rarely will you be able to get a low interest rate on the loan.

Personal guaranty is another thing you need to talk about with the lender as you are seeking to acquire a loan for your small business. What is a personal guaranty and how does it benefit you and the lender? A personal guaranty means that you are willing to pledge a certain amount of personal funds and to sign a guaranty amount. When small businesses grow into larger companies that are making upwards of $1,000,0000 or more, the personal guaranty comes into play if you default on the loan and the lender is at risk for losing millions.

What else do lenders look for when they are offering your business a loan? Your business credit history will play a big role in your ability to get a loan. The credit history gives the lender a good look into the way you have managed your bills and loans to other lenders and if you are able to repay them in a timely manner. As long as you have good relationships with your vendors and the lenders are able to see that you can handle another loan, you will be able to gain approval for it.

Lenders check everything when it comes to finding out whether or not a business is worthy to receive a loan. Some of the things the lenders will seek out include any pending litigations for your company along with tax liens against your company.

Ask the lender why they denied your request for a loan. This will allow you to see if you did not have enough collateral for your company or if your loan request was denied based on a bad business plan and other issues. If you have been denied for a loan, look into applying for a loan through the Small Business Administration (SBA). The SBA has a policy that you will not be denied for a loan based solely on the lack of collateral. They do encourage that you have at least 20% of the total loan amount to personally guaranty. If you would like to acquire a loan through the SBA you will need to contact them directly or head to their website for more information about your ability to receive a loan.

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