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Tata Capital > Blog > Loan for Business > The different types of collateral you can use for business loans

Loan for Business

The different types of collateral you can use for business loans

The different types of collateral you can use for business loans

Businesses, small or big, need capital to grow. A business loan is a handy source of financing that can be used to support any business need. 

A loan for business is available in different forms. You have unsecured personal loans, collateral loans, and then, term loans. However, a loan with a collateral placement is among the most popular choices, especially for organizations in the MSME segment.

By availing of a business loan with collateral, you can get a cheaper loan compared to unsecured loans, and get larger funds sanctioned based on the value of the collateral.

Here is a list of assets you can place as collateral for business loan: 

Real Estate

Real estate is popular and preferred asset collateral for lenders as it retains its value over a period and is easy to liquidate in case of default. The collateral could be a business property or a personal asset of the borrower. 

As a borrower, you can get a high Loan-to-Value ratio (LTV) on a real estate collateral. This is a good option when the fund requirement is large, say to buy new machinery or expand the business.

Additional Reads – How Machinery Loan Can Help You in Expanding Your Business Capacity?

Investment, jewelry, and other valuables

Personal investments such as stocks, mutual funds, bond investments can be used as collateral for business loan. Other assets such as gold jewelry, fine art and collectible antiques can be pledged too. However, with the value of such personal assets fluctuating frequently, the LTV, in this case, is usually low at about 40% to 50% of the market value.

Personal investments are an excellent option to fund short-term needs, such as stop-gap working capital requirements.

Machinery and other depreciating assets

Machinery and other depreciating assets

Large, expensive machinery could be a crucial asset for a manufacturing set-up, but the purchase may end up blocking a huge part of your capital. The same asset can be used as collateral for business loan. Similarly, other assets such as cars, vans/trucks, loading-unloading machinery, etc. can also be pledged for a machinery loan.

Again, the LTV depends on the condition and age of the machinery as it is a depreciating asset.

Bills receivable

As part of the business cycle, you might have to often extend a credit period to your customers. This gap between delivering your product/service and receiving payments can create operational difficulties.

You can offer these outstanding invoices as a collateral to a lender for an instant business loan. With this, you can restock your inventory, pay your staff and vendors and generate new business opportunities.

Additional Reads – Benefits of using a Business Loan after Lockdown ends

Inventory

Sometimes the situation might be such when the sales could be slow, and a large part of your capital be stuck as inventory. This ready stock too can be used as collateral for business loan. With inventory financing, the LTV may vary heavily depending on the type of product, its popularity in the market, durability, sales records, etc.

In closing

Depending on the nature of business and type of asset, there are several assets you could place as collateral for business loan. You can easily apply for a business loan  online through Tata Capital and find an affordable, customized loan that helps you take your business to greater heights.

Apply now

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