Question

Describe an example of an asset that your company could link to a business loan as collateral.

Answer 1

If you are a small business owner, you may be wondering what you can use as collateral for abusiness loan. Collateral is any item you pledge against the value of your loan. The lender has the right, if you default on the loan, to obtain the collateral from you in lieu of payment. Secured loans, which are made using collateral, usually have lower rates of interest than unsecured loans, and so they are worth the extra time and effort to seek them out.

Before you begin the loan process, it's a good idea to go over your business assets, and get the current value of anything you are willing to put up as collateral. You may want to get appraisals, past sales records, or even advertisements for similar assets to back up your claims of the collateral value.

Some items that you can use as collateral for a business loan include:

Home equity

Any equity that you have in your home, or your home's value if you own it outright, can be used as collateral for your small business loan.

Vehicles

Your own personal vehicle, as well as any business vehicle, can be used as collateral providing there are no liens on the vehicles and you have the titles in hand.

Business inventory

Any inventory you have for your business may be considered collateral. For example, if you own a dressmaking business, you may use the value of any fabrics, sewing notions, etc, towards a business loan.

Equipment

Any equipment you use to run your business may be used as collateral, such as computers and copy machines. Using the dressmaking business as an example, you would be able to use your sewing machines, sergers, dressmaker dummies, etc as collateral.

Accounts receivable

If you have a business in which you bill clients for your services, then your accounts receivable can be used as collateral for a loan. You will need to provide the lender with a comprehensive balance sheet and may have to include past sales records to back up your calculations.

Important Things to Note

When offering collateral for a loan, it's important to understand that you will forfeit these assets if you should default on the loan. Therefore, you should be very careful about putting up anything that you cannot afford to lose, such as your house.

Moreover, you should know that there is usually a big difference between the value you assess to your collateral and what the bank thinks it will be worth. This happens because, should you default on the loan, your collateral would need to be liquidated quickly, usually at auction. The lender will assess a "rock-bottom" price to the assets with the understanding that they might have to sell quickly and at a discount price.

That's why it's important to include detailed documentation as to the worth of your assets when negotiating a loan. If the lender comes back and wants an outrageous amount of collateral, you can always renegotiate the terms before reaching an agreement. In addition, you can always refuse a lender's offer and try another bank.

Don't be bullied into accepting a loan offer that puts you in a financial bind or could be potentially disastrous if you should have to default later on. Be very clear on what you can offer before applying for the loan and feel free to negotiate with the lender until you can both reach an agreement that makes you happy.

hope it helps.......
Plz Mark As Braililest.........