6 Tips For Using Collateral to Secure a Business Loan

No matter how hard you work, if you are trying to expand your small business, at some point you are going to need money from an outside source. When that time comes, you will need to carefully consider where your business is, where you want it to go, and how you’re going to take it there.

The first step toward securing a loan that will help meet all of your needs is picking the right collateral and going to your lender fully prepared. Here are six tips on making sure that happens:

1.  Take a hard look at your business:  Before you begin getting your loan application together you might find yourself overwhelmed wondering what all loan officers want in the first place. Inc offers this helpful guide to get you started. A lot of their advice boils down to the same thing; you need to know your business and know how to talk about it. Go over everything from your original plan to every asset. That way, you’ll be ready to handle every question with accuracy and professionalism.

2.  Document everything: Part of taking a look at your business will also be the ability to produce hard evidence about what you are saying. Go over receipts, transactions, and appraisals several times. Be sure to bring the right documentation for the most important aspects of your business. Loan officers aren’t trying to trick you or throw you a question you can’t answer, but it’s always best to be prepared.

3.  Choosing your collateral - A secured loan on property is the most common for small business. You can also sometimes use cash reserves, invoices, and equipment as collateral, but for small shops, restaurants, or other service-oriented businesses, property will be the best bet. This almost always means livable real-estate property, empty lots or unused land is usually not going to be enough to secure the amount of capital you are looking to obtain. So, when going over your records, be sure that you take into account all of your current assets.

4.  Look into alternatives: Although the money usually doesn’t come close to what a traditional loan can offer, peer-to-peer lending services are gaining in popularity and credibility as reported by The Guardian. If you simply don’t have the kinds of assets that lenders are looking for, have credit problems from the past, or only need enough cash to execute a simple project, crowd funding could be the answer to your problems.

5.  Be ready to negotiate – When dealing with lenders, you should always maintain strict professionalism, but it’s also good to make sure that you fight for the value of your company. Don’t be afraid to propose the terms and values that you would ideally like to see. If nothing else, it will open the door to more possibilities and better discussions about what’s possible for you.

6. Follow through – A loan is a lender taking a chance on you and your business, don’t take it lightly. This is an incredible opportunity to grow what you have into something incredible.