Starting a business requires capital and sometimes it become difficult for one to access loan from financial institutions. That’s where assets come in and you can use them as collateral in order for you to secure financing. Whether it’s a startup or existing business, you will require money to expand and grow your business.
When seeking for a loan, the lender will first of all determine your repayment potential as well as the nature of your business. If you have any valuable asset, you can then consider using it as collateral and the lender will give you the loan to boost your small business.
In order for you to qualify to using collateral to secure small business loans, then you need to;
Maintain an updated record of your asset’s worth
Keeping an up-to-date asset worth record will help you in determining the value of your asset. As such you will have a prior hint on the amount of loan that you can borrow with certain assets acting as collateral.
In most cases, the lenders will value the asset according to the prevailing market price. Thus, it is also advisable that you hire an independent appraiser to help you determine the correct value of your property so that you can have a better bargaining power.
Define what you will use as collateral
Collaterals can be classified as owned assets or assets that you own based on a loan (such as mortgage). Most lenders will prefer the assets that you own and have the right documents of ownership. If it is in the case of land, you will be required to use title deed to act as collateral. Other assets that can be used include motor homes or a piece of land. The advantage is that you are likely to get the business loan at affordable rates since the risk of default is minimal.
Know the associated risks
Before you even apply for a loan using collateral as security, you must understand the risk of losing that property in case you fail to meet the obligations. Thus, it is always encouraged to share the idea first with people who may be affected directly by the loss of that property.
Consider engaging a financial advisor who will evaluate your business financial requirements and guide you on the best way to utilize the fund. Financial advisor will guide you on the associated risks involved in any step that you intend to take. Therefore, understanding the risk involved in any collateral will help you make better decisions when seeking financing as well as how you use the funding so that you can make sure that you have repaid the loan.
Bargain for better terms if possible
Once you have a good credit score history, it becomes easier for you to negotiate with the lenders for an affordable interest rate. With such a bargaining power, it becomes easier for you to visit different lenders and you can settle with the one with better terms.
You can also use the property appraisal review to negotiate for larger amount of loans depending with the value of your asset. Always avoid banks that do charge higher interest rates.