There are many types of loans that can be taken for your business needs and one of the most common business loans is a secured loan that most of the businesspeople take. Let us talk about what have secured loans first.
Secured business loans are the type of loans which is basically taken to use it for many purposes like, asset purchase, paying salaries to the employees, expansion of working capital, refinancing, for marketing purposes, etc. Secured is the loan is secured against one of the collaterals which the borrower pledges as asset usually, company’s property, asset, land or equipment against the debt. In case the borrower couldn’t pay or stopped paying the loan amount, then the lender will have all the rights to seize the asset or property that is pledged as collateral. With this type of loan, businesses can generally borrow more amount, whereas the lenders have a better chance of recovering the loan money if it is secured against an asset. the collateral is a very important aspect of this loan type because it reduces the risk for the lending company, which ultimately reduces the interest rate that the borrower must pay.
It is a very well-known fact that every business needs capital at various stages of the business life cycle. Right from the establishment to its growth, expansion or upgradation, at every stage of the business, we need money to get the things done. If we are short of money, then they are lenders or banks or non-profit financial firms who offer business loans. We can avail them with a surety to the lender and get the money worth the value of the collateral. It is important to know that the value of the asset must be enough for the lender to give the loan amount.
As a borrower, you should pledge the asset as security with the lender. So, know what all assets can be used as a collateral to get a secured business loan.
1. Commercial Property: Putting the property as collateral is the most common type of surety put by the borrower and in exchange, he gets the money worth the value of the property.
The borrower must just be careful on the repayments, he has to pay them on time or not the lender has the right to seize the property as a way to cover the losses. So, make sure you are financially stable to pay back the amount on time or plan accordingly.
2. Savings: If the borrower has a fixed deposit or already money saved in the bank account which he is not ready to use, then he can use that amount as collateral for the loan. A loan taken based on savings are called as cash loans or passbook loans. In case if the borrower defaults the payment, then it is easy for the lender to recover the losses as he can take the amount from the borrower’s bank directly.
3. Business Inventory: Your business inventory can also be used as collateral and can get the loan where the lender uses the liquidation value and not the market value, as the inventory is appraised, and this may be less than market value. The business inventory is also a common surety to put on when the business owner wants to take a loan.
4. Accounts Receivable: Your unpaid invoices can be used as collaterals. If your customer has not paid you cash for the taken stock or inventory, then that invoice can be pledged as collateral and retrieving the amount from the customer lies with the bank. If in case the customer does not pay the amount, then it is your responsibility to repay back the whole loan amount.
Now that you know what all assets can be used, you just must make sure that you don’t risk your asset or property by pledging them without you being sure of not paying the amount on time. With taking a loan, you should come out of crises and not get into it.