When lenders are considering you for a loan, they’re going to be looking for your ability to pay back their money. One way they guarantee they get their money back is by asking you to back up the loan with some collateral.
So if you don’t pay your loan back, they gain ownership of your collateral, whether that be your house, car, or equipment. It’s an important way for people with less than perfect credit to have a shot at getting a decent small business loan.
Today, Burke Alder explains 7 different forms of collateral in this Lendio Whiteboard Video.
Welcome to Lendio Whiteboard. This Whiteboard Series is dedicated to the ins and outs of making small business loan simple.
This week we’re talking about pillar number 4 in getting small business loans and that’s collateral. Let’s check out the types of collateral you can use to secure financing for your business.
We’re going to start with home equity. As we look at home equity, you’re going to take the equity of your home and you’re going to be able to see about 75% of that for a loan.
Now as we move to 401k, and before you start looking at using your 401k, we advise that you console with a professional about this because you’ve worked hard for that money and that’s for your retirement. But when you look at that type of collateral, you’re going to see probably around 80-90% minus taxes for the loan-to-value-ratio.
As we look at commercial properties, both your home and your commercial property, they could actually appreciate or they could depreciate. But for commercial property, you’re probably going to be looking around 50% loan-to-value-ratio.
Now with equipment, you’re going to the appraised value of your equipment and you’re probably going to see around a 50% value. That’s another option for collateral in getting a loan.
Similar with automobiles, the appraised value of your auto mobile, or a truck, or a van, or a piece of equipment. You’re probably going to see that 50%.
Now let’s kind of turn over this other side, which I’m going to start probably using things you might not know on collateral types. But you could use your accounts receivable or purchased orders to see almost 100-125% of that value in a loan. So five hundred thousand on purchased orders, they could probably see a loan of a hundred thousand to a hundred and twenty five thousand.
Now as we move to credit card transactions, many people don’t know that you could actually use those as a form of collateral to get a loan. So you’re looking at your daily transactions and also using your deposits of how much you deposit into a bank account. Both of those types can be different types of collateral you can use in getting financing.
So today we’ve really looked at the breadth of collateral and how you can use it to get a small business loan. These are more probably the traditional types, probably – besides the 401k but you know traditional banks, a credit union will probably look at this collateral in giving you a loan. Then we move over to here which is more of the alternative or innovative lending options in collateral.
So thank for stopping by for this Lendio Whiteboard and we’ll see you next week.
Other videos in this series: