Get Funded! | Step #4 Your Business Collateral

Get Funded! | Step #4 Your Business Collateral

By: Ervin Hughes, Jr.

Managing Director at Rainstar Capital Group | President at Dominion Capital Management

Step #4 Your Business Collateral.
Getting a business loan is a real challenge for small companies in the early stages of development.
Why? Because early-stage companies often have little or no income or assets to support the financing it
can make getting funding very difficult. Alternative lenders are much more likely to provide funding to
companies who can offer collateral to secure the loan requested.

What is Collateral?
Collateral is something that helps secure a loan. When you borrow money for your business, if you have
challenged personal credit or lack income you may choose to pledge some business assets so that your
lender can take something of value and sell it to get their money back if you default or otherwise fail
repay the loan.

The Benefits of Pledging Collateral to Secure a Loan
There are some benefits to pledging collateral to your lender. Collateral makes it possible to get large
loans, and it improves your chances of getting approved if you’re having a hard time getting a loan.
When you pledge collateral, the lender takes less risk, which means you’re more likely to get good terms
because the collateral acts as a backstop for losses for the lender in the event of a default. If the loan
is not repaid, the lender may seize the collateral and sell it to pay off the loan.

Collateral Types You Can Use to Secure a Loan
Before you decide to seek business financing, it’s a good idea to assess what collateral you or the
business owns free and clear that could be pledged to secure your loan. Here’s a list of some common
types of collateral that is most often used to secure business loans.

The most common collateral types are:
 Business or personal real estate
 Home equity
 Business property like machinery or specialized equipment
 Business or personal vehicle
 Farm assets and products
 Accounts receivable
 Inventory
 Natural reserves
 Insurance policies
 Investment accounts
 Paper investments
 Business savings accounts
 Such valuables as fine art, jewelry or collectibles

Collateral Valuation – How Much is Your Collateral Worth?
How much your collateral is worth depends on what type of collateral you have. Finding the value of
your collateral can be as straight-forward as checking the balance of a bank account or as complicated as
having your family heirlooms appraised by an expert. Before you get your collateral appraised, ask your
lender what procedures borrowers typically follow for that type of collateral. They might have some
suggestions or requirements for who and how you determine your collateral’s value.

What’s the Goal?
To build your balance sheet with Accounts Receivable by selling your products or services to
creditworthy government agencies or large corporations on “net-30” day credit terms. This strategy
allows you to leverage the credit strength of your customers to build your Accounts Receivable collateral
assets simultaneously. Be prepared to provide bank and financial statements to prospective lenders to
prove that your business has enough cash flow to support new debt.

Want to Learn More?
Attend How To Make Your Business Bankable – Presented By American Business TV at Small Business
Expo 2019 – Miami – @thebizexpo #SmallBizExpo #Funding @sched