5 Types of Collaterals that can be used to Avail a Secured Business Loan

5 Types of Collaterals that can be used to Avail a Secured Business Loan
513 Views

Small Businesses need business loans to grow and meet their aspirations by covering both short term and long term capital requirements. However, the traditional lenders always asked for collaterals in the form of properties to underwrite the business loans for the small businesses.
One factor which a lot of small businesses are not aware of is that there is many a types of collaterals that they may offer to lenders specially the new age digital lenders who look beyond the property as a collateral to process your loan application. Let us take a look at the top 5 types of collaterals that can be used to avail a secured business loan.

1. Property
Property is the most common type of collateral that is offered to lenders for getting a secured business loan. Lenders evaluate the value of the property that is pledged to get the small business loan and normally they offer business loans upto amount which is lower than the value assessed of the property offered. Businesses offer both personal and business properties for the purpose of getting business loans. This type of loan however, takes a lot of time as the property assessment and evaluation takes a lot of time to process. The traditional lenders have been offering small business loans against properties since the very beginning.

2. Invoices
Invoices are another critical type of collateral that can be assessed by a lender, an invoice is essentially a promise that one company will make payment to another. Small businesses can offer their invoices which they raise to the large corporates and lenders can offer a business loan up to 80% or even 90% of the invoice value. The small business can then use this amount and return the amount to lender when the company pays the invoiced amount to them. They pay fee to lenders only on the amount and number of days they used the amount for. Invoice discounting is still not fully utilized by the small businesses. The digital lenders like Indifi today are promoting invoice discounting as a new age way to get access to quick business loans.

3. Inventory
Businesses have inventory as a critical asset type that can also be pledged with the lenders for availing small business loans. Traditional lenders and a few digital lenders offer this secured loan again the inventory value, a lender assesses the value of inventory and the amount of loan offered is normally below the average inventory value that a small business has. A loan against inventory is loan against your own business and hence, much more connected with business than a simple secured loan against a property.

4. Cash
while a loan is available against the cash deposited with the lenders it is very costly as there is an opportunity cost of keeping the funds idle and also it is very rare for a small business to have idle cash against which they would like to avail a business loan. However, if your small business has emergency funds and would like to avail a quick business, cash can well be pledged to get secured business loan.

5. Business Assets
A business has a lot of assets that may be pledged to get access to small business loans, if you run a factory or a machinery led business the factory or machineries can be pledged with the lenders to get evaluated and lenders can offer a small business loan which is below the value of the business assets pledged for the business loan. This is beneficial for businesses which has a big infrastructure like manufacturers.

A secured business loan is mostly offered by the traditional lenders and one critical concern is the time taken in processing of these business loans, it might take a few weeks or even months to get the decision on your secured business loan application. However, digital lenders like Indifi are today making it simple for small businesses to get access to business loans even without security and also the advanced business loans like Invoice Discounting which may be considered a secured loan as it is against the invoice value that a small business raises to å large corporation. These digital lenders provide a loan decision fast, as quickly as within 24 hours to help realize the true potential of a small business.