Tips For Securing A Small Business Loan With Collateral

Running a small business can be very exciting and lucrative, but no matter how successful a small business may be, there are often times when the company needs additional capital in order to expand. When this time comes, most small business owners look into obtaining a loan. Many financial institutions practice asset-based lending when issuing loans to small businesses, meaning that the business must provide collateral to secure the loan. If you're a small business owner thinking about using collateral to secure a small business loan, use the following tips.

Understand What Can Be Used As Collateral

Banks will issue small business loans when a business owner can offer one of several different types of collateral. The most commonly used types of collateral used to secure a loan include real property, inventory that a company owns, equipment that a company owns, vehicles, accounts receivable, and cash. Interest rates on a small business loan that is secured by collateral will vary depending on the type of collateral used; using a savings account or other types of cash-based financial accounts usually results in the lowest interest rates.

Get An Appraisal 

Before you apply for a loan for your small business, it is important to know what your collateral is worth. If you're using a cash account to secure the loan, you will know exactly how much collateral you have to offer. But collateral that is not cash should be appraised, so you know what it is worth. It is important to note that lenders consider the current market value of something that is being used as collateral, not the price that you paid for it. Keep careful records of any appraisal that you get before taking out a loan. 

Consult a Financial Adviser

While a small business loan secured with collateral can help your business grow and expand, it can come with some risks. If you default on the loan, the bank will have the right to keep your collateral. Thus, it is important to choose a lender wisely and ensure that your small business can comfortably afford the payments. Talk with an experienced financial adviser to determine how much your small business can afford to borrow and what lender offers the best options for your company.

Compare Loan Offers

If your company has a history of good credit and is well-qualified for a loan, it is in your best interest to compare the loans from several different lenders. You may be able to negotiate the terms of the loan to help ensure that your small business gets the best loan possible.