The Advantages of Using Collateral For Your Business Loan
In today’s market, business loans are essential to help companies grow and expand their products and services. However, securing a loan can be challenging and time-consuming, if you don’t know how exactly they work.
As a business owner, one thing you need to keep in mind is that lenders are more likely to provide funds if you can offer collateral for your business loan.
Collateral refers to any asset that a borrower pledges to a lender in order to secure a loan. The most common forms of collateral include property, equipment, and inventory, but almost any valuable asset can be used as collateral.
In this article we’ll explore several advantages of secured business loans, and how they can help achieve your business goals.
Higher Approval Rates
One of the primary advantages of using collateral for your business loan is that it can increase your chances of being approved for financing. Lenders are often more willing to lend to borrowers who offer collateral, because it reduces their risk.
When you pledge collateral, you are improving your trustworthiness in the eyes of lenders and demonstrating your commitment to the loan, as well as your ability to repay it. This can improve your credit score and make it easier for you to obtain financing in the future.
Increased Loan Amounts
One of the biggest advantages of using collateral for your business loan is that it can boost the loan amount. Since the collateral serves as security for the loan, lenders are more willing to lend larger sums of money. The loan amount can be as high as the value of the collateral.
Specifically, lenders have something to fall back on in case the borrower is unable to follow the repayment schedule. This means that secured business loans provide improved loan terms, giving the opportunity for borrowers to negotiate for longer repayment periods or larger amounts.
It also means you can manage cash flow better. The loan terms are more favourable and suited to your needs, reducing the pressure on fund management and repayment schedules. With more time to repay the loan, businesses can allocate their financial resources to other areas of their operations.
Lower Interest Rates
Collateral reduces the risk for the lender, which allows them to offer lower interest rates than they would with an unsecured loan. In an unsecured loan, the borrower does not pledge any collateral, which means that the lender has no security for the loan. If the borrower fails to repay the loan, the lender may have limited options for recovering their losses, which increases their risk and the interest rate they charge.
Access the Funds You Need
If you’re considering using collateral to obtain a loan, be sure to carefully consider the risks and benefits and choose the option that’s right for your business.
At Aurora Capital, we understand the unique needs of businesses and can help you make the right decision; providing access to the funds you need not only to survive, but to thrive. Get in touch to learn more about business loans and secure the best financing solution for your needs.