What is a Secured Business Loan?

Secured business loans or Asset Based Loans are a common type of small business funding. They’re any type of business financing that’s secured by some type of personal guarantee or asset as collateral. Whatever you choose to secure these business loans with, you’re essentially promising your lender that you’ll repay your loan.

What is a Collateral Asset?

Collateral assets come in many forms. Defined by the Small Business Administration, collateral is “an additional form of security which can be used to assure a lender that you have a second source of loan repayment.” Most commonly, collateral is real property (i.e. an owner-occupied home), but it can also be represented by your business’s inventory, cash savings or deposits, and equipment. To structure a loan that benefits both you and your business, you’ll need to make the right decision about what you offer up as collateral to the bank. It’s also important to be realistic when considering the risks of defaulting on a loan, which could have harsh consequences for not only your business but for your personal life, too.

Issues To Consider:

Below are some relevant issues associated with each type of Asset Based Loans or collateral that you should consider before approaching a bank for a loan.

Real Property:

Since the housing bubble burst, using the real property as collateral financing took a huge hit. Denise Beeson, a commercial loan officer based in San Francisco, says that this has been a significant roadblock for small businesses seeking small business loans. “It’s devastating small business right now,” she says. “In the past, they’ve used the equity in their home, and they don’t have any of that equity anymore.” Additionally, banks will not consider vacant land, or “dirt” as it’s referred to in banking, as viable collateral.

Business Inventory and Accounts Receivable:

Asset-based lending can be a great way to get a fast influx of cash to your business. For example, if your firm gets a big purchase order, you may not have the resources to meet the needs of the client without bringing on additional staff, equipment, or raw materials. In some cases, a bank will allow a company to use that purchase order as collateral. “It’s a little trickier to get,” explains Jeff Allen. “It might be more difficult because it’s harder to authenticate…but a bank will usually lend against that.”

Cash Savings or Deposits:

“Cash is always king,” says Allen. Using personal savings will almost definitely be allowed as collateral since it’s a low-risk loan for a bank. This also applies to CDs and other financial accounts. The advantage of using these accounts as collateral is that you’re guaranteed a low-interest rate because it’s a secured loan. The disadvantage, clearly, is that if you default, the bank will take possession of your savings.

At Mount Beacon Consulting our Customer Service focused loan specialists are ready to help support your business funding needs. From start to finish and in between we provide fast, simple and direct answers to any questions that arise before, during and after the application process.

If you would like more information about Asset-Based Loans or the additional business loan programs available, call us at (845) 765-8811 for a no-obligation consultation.