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Being new to the business of commercial lending, I had a Odd Considering the collateral and its importance while giving loan. As time goes on, I realize the importance of not only to achieve Collateral when giving a loan, but the absolute necessity of having it. First things first, what is collateral and why is it important for getting a commercial loan?
To sound very simple, collateral includes anyone and everything that can take a security interest in a lending source such as equipment, vehicles, inventory, accounts receivable, land and buildings, notes receivable, or investment accounts. You are wondering why the lending sources want to get security interest in these assets? Glad you asked. To reduce their risk of loss in case of non-payment of loan. Just as in our personal lives, nothing in life is guaranteed and no one has been able to accurately predict the future with any measure of stability. not only being repaid, but also to do a measure of trust calm the blow If the life happens, the banks secure the property as collateral.
The amount of property you may have to put up for collateral is a measure of its marketable value based on its use, age and resale value. Understanding the value of having collateral is essential for early stage and startup businesses. In addition to becoming cash flow positive as quickly as possible, another goal for a startup or early stage business is to acquire assets with some ownership interest or at least a controlling interest. Having these goals in mind early on will go a long way when applying for a commercial loan. Not only does it reduce business, operational and collateral risk in the eyes of the lending source, it also gives you the ability to get better terms on the loan.
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