Is it Necessary to Use Collateral for a Loan?

Collateral has always been one of the major factors considered by traditional lenders, in terms of deciding on whether to approve a borrower’s application or not. This is understandable, given the fact that it’s entirely possible the borrower will default, and the lender doesn’t want to be caught holding the bag.

The SBA Perspective on Collateral

Since the SBA is a huge player in the small business loan industry, their perspective on collateral can be considered to be significant. When an applicant does have worthwhile assets, the SBA will generally require that they are used as collateral for a loan application. However, its own statement of mission says that the SBA will not usually disapprove a loan application when the only unfavorable factor on the application is a lack of collateral.

Therefore, if you own any kind of buildings, equipment, inventory, or accounts receivable, the SBA is likely to require you to offer it as collateral on a loan application. Almost anything that has value in the business world, as well as any personal assets, will be considered acceptable forms of collateral by the SBA, and in truth by most other lending institutions as well.

Traditional Lenders’ Perspective on Collateral

Almost all traditional lenders will require that you submit some form of collateral with your application for a small business loan. This is understandable, given the fact that if you should default on that loan, the bank itself would have to make up the shortfall, and if that were to happen very often, it might well cause the bank itself to flounder.

If you’re looking for lenders who do not require any form of collateral, you have a better chance of finding one online, among the numerous alternative lenders which have emerged over the past decade. For these lenders, the collateral that they need is more often tied to your accounts receivable or your purchase orders, rather than on any physical assets your company might own.

Need a business loan? 

Whether you have collateral or not, if you need a business loan to help out your small business, we may be able to help. Contact us at Approved Business Lending, so we can consider some alternatives that might provide you with the funding you need for business growth.

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