The Best Collateral to Use in Loan Applications

As part of any small business loan application process, businesses are asked to provide information to banks and lending institutions to help them determine the profitability of the company and the likelihood that they will get their money back. For businesses, especially startups, providing loan collateral is a great way to gain approval. The following is a list of items that are recommended for use in providing banks or online credit lenders with business loan collateral:

 

  1. Personal Savings and Cash Deposits

The famous expression goes, “You have to have money to make money.” That statement holds true when seeking a small business loan. Banks view personal savings, certificate of deposit, and other financial accounts as an approved form of collateral and most importantly, sees the business as a low risk investment when the owner can readily display an ability to pay all or at least some of the loan back.

 

  1. Physical Property 

Some of the most commonly used forms of collateral that owners of businesses use to secure a small business loan include homes, vehicles, equipment and sometimes inventory. Banks and lending institutions want to be sure that if they don’t receive payment for their loan, they can at least liquidate the physical property and recoup their cash investment.

 

  1. Accounts Receivable

 For companies that have a list of clients that they bill for services, they may be able to use their accounts receivable as loan collateral. In order to make this work, the owner will need to provide a balance sheet along with a track record of sales in order to show proof of value to the lender.