What counts as collateral for a business loan?
A reader recently posed a great question: what counts as collateral for a business loan?
Anything you or your business own can be used as collateral for a business loan. If their is another lien on the asset already, a lender might not be able to use it (unless it has a lot of value).
Lenders prefer real estate as collateral for a business loan. That’s because real estate is easy to appraise accurately and quickly. It also holds it’s value and has a strong resale market. But lenders will also consider things like vehicles, equipment, stocks & bonds, accounts receivable, and inventory as collateral for a small business loan.
Most lenders will discount collateral to reflect continued wear & tear, cost to collect, etc. That means collateral will be assigned a value lower than current fair market value by lenders. For example, real estate might be worth 90% fmv, equipment 50-75% fmv, and furniture & fixtures maybe 10-25% fmv.