How Much Collateral Is Needed for a Business Loan
If you’re seeking a business loan, putting up collateral may be a sound decision. With collateral, you can often get better conditions, such as lower interest rates, a larger borrowing amount, or a longer repayment period. But how much will you need? Here are four major elements to consider when seeking an asset-backed loan.
1. Borrowing Amount
How much you plan to borrow may be the single most important factor when it comes to determining the collateral needed for small business loans. The purpose of collateral is to ensure that the lender is able to recoup its losses if you default. To this end, collateral liquidation must be at least equal to the amount initially borrowed.
You also need to take into consideration the loan-to-value (LTV) the lender is willing to offer. LTV is a ratio of loan amount to the actual asset value, usually expressed as a percentage. The LTV is almost never 100 percent, so you’ll need collateral more highly valued than the actual lending amount. Lenders typically set the LTV depending on the collateral and loan type.
3. Collateral Type
Some kinds of collateral are easier to liquidate than others, which means lenders have to spend less time, effort, and money to recoup their losses. The easier the asset is to liquidate, the more likely you are to get a higher LTV.
There are some assets, however, which lenders may not accept. For example, even though technology can be expensive and extremely useful, it may quickly become outdated. This would leave lenders with less valuable assets they can’t easily liquidate.
4. Loan Type
Business collateral loans also come in several different forms, such as these:
- Lines of credit
- Term loans
- Accounts receivable financing
Each of these types carries different levels of risk for the lender. The higher the risk, the lower the LTV is likely to be so the lender can ensure the loan amount is covered in the event of default.
Pawngo is proud to offer business collateral loans in exchange for luxury items such as designer handbags, jewelry, and watches. The process is quick and easy, starting with a simple application on our website. We’ll look over your information and send you an initial offer. If you like what you see, you can send us your luxury asset at no cost for our experts to evaluate.
Once the examination is complete, we’ll send you a final offer. Upon your acceptance, you can receive funds as quickly as one day. For more information or to get started, contact us at 1-866-499-2363 or go online.