Secured Business Loans to the Rescue!
Secured business loans can be like a bank bailout of your personal business recession. They can keep you afloat and make lenders feel all warm and fuzzy inside!
Have you ever lent out money? What was your assurance that the borrower would pay you back? If you’re like most people you likely had little more than a handshake.
(That might be why you still haven’t gotten your $50 from Uncle Joe. But I digress.)
Lenders really want some form of collateral to serve as assurance that they will get their money back.
They want to be able to seize something of value in case the borrower should default on the loan. That extra assurance makes them all the more willing to lend.
Can you get a secured business loan to finance your business? Why not? Checkout these answers to common questions from business owners.
Your Questions:
- What can I offer lenders to serve as collateral?
- Is a secured loan better than unsecured? What’s the difference?
- What if I don’t want to use my home as collateral?
- Are secured business loans always based on my personal credit?
- How can I improve my chances of getting approved for a secured business loan?
Real Answers:
What can I offer lenders to serve as collateral?
Common forms of collateral offered to lenders today include but are not limited to the following:
- Commercial property
- Residential property
- Equipment
- Accounts receivables
- Merchant account sales
- Cash and even
- Intellectual property or trademarks
Notice that most of these assets are income producing or have the ability to produce income.
Why is this important? If you default, the lender can make income until the asset is sold! No wonder collateral makes them feel so good.
Is a secured loan better than unsecured? What’s the difference?
Simply put, a secured loan is backed by collateral while an unsecured loan is not. Each has its pro’s and con’s so the better choice really depends on what’s important to you. The table below is an apples to apples comparison of the two. Take a look.
| Secured Loans | Unsecured Loans |
| Secured by collateral | No collateral. Lender can’t seize anything if you default. |
| Low interest rates | High interest rates to compensate for the increased risk |
| Longer terms | Shorter terms |
| Low payments | Higher payments |
| Easier to qualify | More difficult to qualify especially with poor personal credit. |
As you can see, that extra assurance provided by the collateral (especially income producing collateral) makes lenders feel all warm and fuzzy inside. They reward the borrower for that with better interest rates and terms.
What if I don’t want to use my home as collateral?
Then Don’t! Often business owners have only their personal homes to offer as collateral. If this is the case for you, I highly recommend that you build your business so that you have something else of value to offer.
Undeniably, offering your personal home is too high a sacrifice if you do happen to default. Instead, seriously consider building other resources to offer lenders as collateral.
Are secured business loans always based on my personal credit?
Not always.
If your loan is secured by merchant account credit card sales or account receivables your personal score will likely not be an important factor in getting approved.
Another way to get a secured business loan without perfect credit is to secure the loan with cash.
Let’s say you have $10,000 saved up. You can use the $10k to secure a loan for equal to or more than that amount.
Talk to your banker about keeping the $10k in a separate account called a "compensating balance" account. Even though cash is king, if your credit is very poor, you may still need a co-borrower to qualify for this type of secured loan.
How can I improve my chances of getting approved for a secured business loan?
1.) Educate yourself on the
- Credit Worthiness
- Income
- Experience and
- Stability
- Financial Statements
- Business Plans
- Corporation Docs and the like.
- Business Loan Broker
In conclusion, secured business loans can get you money when you need it.
Give lenders what they want, namely income producing collateral, and they will gladly put money in your account.
At Guide-to-Business-Loans.com, we know what it takes to get a business or commercial loan closed. For more information or to start a loan application, feel free to Contact Us. We're looking forward to your call.
P.S. - Have some supporting docs in hand? Take a good look at them. Blink twice.
Now look at them again. This time though, look at them with a lender’s eye. We can do this together.
It all starts with Financial Statements. What are financial statements? What do they include? What do they not include?
We'll soon teach you how to see your financial life story with a lender’s eye. Be sure to check here regularly for updates.
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