This Fieldhaven Business Funding article answers what a Valparaiso, Indiana business can use as collateral for a loan: equipment, vehicles, receivables, inventory and blanket liens; what an unsecured business loan is; what a secured term loan is; and how personal guarantees work. Worked figures show how funders value each kind of collateral.
What Can I Use as Collateral for a Loan? The Short List
- Equipment and vehicles the business owns.
- Accounts receivable: invoices customers owe.
- Inventory held for sale.
- Cash in a pledged account.
- A blanket lien on all business assets.
- Real estate, in loans that take it.
Each is valued at a share of its worth, because the funder has to sell it to recover money. Equipment financing uses the machine being bought as its own collateral.
What Is Collateral for a Business Loan, Valued in Practice?
Illustration only, invented figures: an invented $80,000 machine might support a loan of 80% of its value, $64,000 (our arithmetic). Receivables of $120,000 might support 75%, $90,000, and inventory of $60,000 might support 50%, $30,000 (our arithmetic). Shares differ by funder and by how easily the asset sells; these figures are invented to show the method.
What Is a Secured Business Term Loan?
A secured term loan pays a fixed amount on a schedule and names collateral. Buying a business, for example, can be secured by the business's equipment and receivables. The term loan page covers term loans for buyouts and growth, and the article on buying a landscaping business works a purchase through.
What Is an Unsecured Business Loan?
An unsecured loan names no specific asset. The funder relies on the business's cash flow and the owners' credit, and usually asks for a personal guarantee. Because the funder has nothing specific to sell if payments stop, unsecured loans can carry higher prices or shorter terms than secured ones of the same size. What is unsecured business financing? The same idea across products: lines, working capital loans and some term loans without named collateral.
What Is a Non-Collateral Business Loan, and What Is a Personal Guarantee?
A non-collateral loan is another name for an unsecured one. A personal guarantee is a promise by an owner to pay if the business does not, which reaches the owner's personal assets. Many secured loans carry a guarantee as well. Read how far a guarantee reaches: some are limited to a dollar amount, others are unlimited.
Vehicles and Titled Equipment as Collateral
Trucks, trailers and some machines carry titles, and a funder secured by a titled vehicle records its lien on the title itself. Paying off the loan releases the lien, and the title comes back clear. Before pledging a vehicle, check that the title is in the business's name if the loan is to the business; a truck titled to the owner personally is a personal asset, which changes how a funder treats it.
Blanket Liens and Financing Statements
A blanket lien covers all business assets, present and future. Funders record their liens by filing financing statements with the state, and the Indiana Secretary of State Business Division handles business filings in Indiana. A business with a blanket lien in place may need the existing funder's consent before pledging an asset to someone else, so list every existing lien when sending a request. A business line of credit can be secured by receivables or stock, or unsecured.
Is a Secured or Unsecured Loan Better for a Small Business?
Neither is better in general. A secured loan can carry a lower price because the funder can recover money from the collateral, but the business risks losing that asset. An unsecured loan leaves assets unpledged but can cost more and still reach the owner through a personal guarantee. The right choice depends on what the money pays for: a machine fits a loan secured by the machine; a short payroll gap fits a line, secured or not.
Collateral When Buying a Business
When a loan pays for buying a business, the business's own assets, its equipment, receivables and stock, usually become the collateral. A funder values them at the closing date, which is why a buyer should count the stock and age the receivables at closing rather than relying on the seller's last year-end figures. The landscaping purchase article shows how equipment and accounts are valued separately.
A Collateral Checklist Before a Request
- List equipment and vehicles with serial numbers, ages and payoffs.
- Pull a receivables aging, with amounts over 90 days apart.
- Prepare a stock list at cost.
- Find any existing liens and the funders that hold them.
- With the lien list in hand, phone (219) 206-9543 or open the request form.
County business counts by sector are collected on the Valparaiso, IN page.
By Fieldhaven Business Funding · Updated
