Regardless of the type of small business you’re opening, getting a secured business loan or an alternative method of funding is a must. Getting a small business loan may seem easy, but there are considerations to have to keep in mind before getting one.
Whether you’re a start-up or have been in business for a while, , the bank is going to take into account your current finances, when applying for a loan.
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Even for established businesses,banks require a safeguard to help insure that their risk is going to be rewarded. In many cases, using some type of asset as a form of collateral may be the best method. Collateral can often mean anything of great value that isn’t going to depreciate quickly. Examples include real estate, equipment, inventory for your business, etc.
There are many tips to keep in mind when going the route of putting your asset as collateral.
1. Identify the property to use as collateral.
There are two very distinct types of collateral available to most business owners. The first is an asset you already own and the other is asset that still has a loan against it, such as a mortgaged home.
You must have the title of the property or some proof of ownership before banks consider it as a form of collateral. Without proof, there’s no guarantee that the bank will recoup their losses.
2. Understand your asset’s worth.
Understanding your asset’s worth is important because banks will value your collateral much lower than its actual value. Do not rely on the bank to appraise the value of your items.
3. Understand the risk involved.
While putting your home, car, or other property up for collateral will help you get secured business loans, keep in mind that anything can happen. Should things go sour, you could be out of home, vehicle, etc. Not to mention your business has probably seen better days, so getting ahead again may be difficult.
4. Don’t be shy to include your input.
Most people think that banks never negotiate, but it can never hurt to ask. Those with established history as a borrower are more likely to pull some weight in the negotiations.
Also remember that you may reject a particular lender’s bad offer and seek other sources of funding instead.
Being aware of what you have, its worth and what your business needs is the key to making sure any collateral-based small business loans are within reason. You may not get the full value of your assets for the loan, but weight the risks and rewards before making a decision that can leave you with next to nothing.
