There are many ways to finance a business! But even with all the different choices on the market, for some, obtaining a business loan is impossible. That’s where secured business loans come in!
Are secured business loans ONLY for business owners with bad credit?
For many years, secured business loans have only been offered to business owners with bad credit. Since these loans are collateralized, even if the business owner had bad credit, the bank would still issue a loan based on the financial strength of the business and the value of the collateral.
What kind of collateral is required for a secured business loan?
When looking over an application for a secured business loan. The first thing we look at is what kind of equipment or real estate is being used to secure the loan. We are looking for assets that fall under the following criteria:
- Equipment / real estate is 100% owned by the business owner. Sometimes we allow collateral that has a small balance still owed on it, as long as we can pay it off with part of the loan proceeds.
- The collateral must hold its value. Equipment like computers are hard to get approved for this program. That’s because computers lose their value so quickly. From time to time we have been able to help companies with high-end servers with this program.
- Most secured programs use a percentage of the auction value of the equipment as a basis of the loan. But depending on the equipment we have programs that will use the Fair Market Value of the equipment
Application Process Of A Secured Business Loan
The application process is fairly simple and fast. We require the following :
- List of equipment that you want to use as collateral (we need, make model, condition)
- 3 months bank statements
Once an agreement has been reached we will send out an inspector who will make sure that the equipment matches with what was offered and is in good working order. If the inspector states the equipment is in poor condition, we can not do the loan.
Once we get the “OK” from the inspector, we can usually fund the loan within 24-48 hours if all the paperwork has been submitted.
The interest rate varies depending on the credit of the person applying. While these loans are known for their ability to provide financing for bad credit borrowers. We still get plenty of business owners with good to excellent credit that perhaps the type of business they own or their time in business is making a traditional loan hard to obtain.
What happens if the business defaults on the loan
If the business owner defaults on the loan, the bank will repossess the collateral that was used as security.
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Liz Roberts has been in the business financing industry for 20+ years. She got her start in banking, went on to consumer and commercial collections and then onward to becoming a senior credit analyst for several small leasing companies. She has also been a freelance writer for 15 years and has written about business and consumer financing on several blogs. She also maintains a low carb living blog.