Do I Need To Put Up Collateral For A Business Loan?

If you run your own business, you might be wondering if you’ll need collateral for a business loan. Generally, it depends on the type and size of the loan. If you apply for a bigger loan, usually collateral will be needed. If you apply for a secured loan, you may also need to provide collateral. This could be a property, a business vehicle or even machinery or equipment that is used in the business.

Read on below to find out more about business loans and collateral.

What is collateral?

Collateral is an asset used to secure a loan while reducing the risk of lending to a small business. If you cannot make your loan repayments, the collateral can be resold by your lender to cover the remainder of the loan.

The amount of collateral you may need for a loan could vary depending on the amount you want to borrow, the type of loan you are applying for, and your credit score.

Generally, a higher value loan will usually require collateral. Business owners with low credit scores or little to no credit history may also find it helpful to apply for a business loan using collateral.

Do I need to put up collateral for a business loan?

Whether collateral is needed for a business loan may depend on the overall amount of the loan, the type of loan and your credit history.

However, if you do not wish to put up collateral, you may find that an unsecured loan is best for you. Generally, unsecured business loans are available through alternative lenders. To apply and be approved for an unsecured business loan, you may need bank statements readily available and a good credit rating and history.

However, if you wish to apply for a secured business loan, however, you will generally need to have collateral.

What type of collateral can I use?

If you apply for a secured business loan, most lenders will want you to put up security for the loan. In most cases, this can be either residential or commercial property that you own. Before you use a property as collateral, you may want to know it’s worth, and how much equity is available in it. In some cases, your lender might want a property valuation done to confirm the value of your property.

If you cannot provide property to use as collateral, you may be able to use equipment in its place.

If you own high-value machinery or equipment that you use in your business, your lender may agree for it to be used as collateral for a secured business loan. Your lender may want to have the equipment professionally valued, and they may ask to see maintenance records to show that the equipment is in good shape.

Another option for collateral could be a business vehicle. Once again, you may need to know the value of the business vehicle before applying with a lender for a secured business loan. Otherwise, a lender may want to conduct their own valuation.

Other types of business loans

If you cannot provide security for a loan, there are other types of business loans that you may be eligible for. These could include:

Line of credit – As opposed to a loan, a line of credit is not one singular lump sum payment. Instead, it is an agreed-upon amount of credit from your lender that you can withdraw as you need it. In most cases, you only need to pay interest on the amount you use, instead of paying interest on the total sum.
Unsecured loan – With this type of loan, you are not required to put up any collateral as with a secured loan.
Fixed-rate loan – Similar to other types of loans, a business loan can come with either a fixed or variable interest rate. A fixed-rate is set by your lender for a period of time, usually between one and five years.
Variable-rate loan – In a variable rate loan, the interest can be changed month by month at the discretion of your lender.

Where does Tiger Finance come in?

With Tiger Finance, we can help to get you a loan in four easy steps. You will have a free consultation with one of our specialists, and we will tailor-make you a loan. We will negotiate with lenders on your behalf before you are approved.

We have helped countless Australians with both good and bad credit ratings to be funded for their business. We understand that lending criteria from other lenders are too strict, and can stop you from achieving your goals. That is wrong, and it should not hold you back.

How we can help

Our finance specialists can help you find the right business loan for your project. Business loans are a complicated topic, but we will find a loan that makes your dream project that much easier.

If you are one of the many Australians finding getting a business loan difficult, Tiger Finance can make the process simple and pain-free. Call and talk to one of our loan specialists today for your free initial consultation.