Collateralized Financing
In the realm of business lending, business owners can access both unsecured and secured financing. Bank and non-bank lenders make unsecured loans when they grant non-collateralized loans to companies.
Unsecured business loans do not require collateral to secure the proposed financing. You simply sign an agreement to repay the loan indicating that you’re an authorized representative of the business before the creditor disperses the loan.
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Can help your business grow, fast.
Contact Us To See How New Bridge
Can help your business grow, fast.
Term loans
Up to $2,500,000.00
Lines Of Credit
Up to $150,000.00
MCA's
Up to $500,000.00
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Applying for a small business loan at New Bridge Merchant Capital is Quick and Simple!
1
Complete the Application
All of your information is kept safe and we only ask for basic information about your business and three months of your most recent bank statements.
2
Get A Decision
Your dedicated loan advisor will review small business loan options with you to find the one that best suits your needs.
3
Recieve Your Funds
Once you complete the online checkout, you can receive your funds as soon as the same day.
Everything You Need to Know About Asset-Based Business Loans
A secured loan, in contrast, must be backed by some form of collateral or assets that your business can use to secure what’s known as collateralized financing. Collateralized loans are commonly referred to as asset-based loans or commercial collateral loans.
Many business loan programs require some form of collateral to secure business funding, while companies have a diverse range of options for collateralizing the proposed loan. Companies can any assets owned, including real estate, equipment, inventory, and their accounts receivables.
From a lending perspective, secured loans carry less risk than unsecured financing. Unsecured loans are based on documented cash flows, the business owner’s personal and business credit profile, and a good faith promise. Since commerical collateralized loans carry less risk than unsecured financing, they almost always offer lower interest rates and more flexible repayment terms.
Why do lenders prefer collateralized business loans?
Backing a loan with your business usually leads to lower interest rates and fewer borrowing costs over the life of the loan. Depending on your credit and asset circumstances, staking collateral in the proposed business loan offer may be the only way to get approved for additional funding.
Business lenders assume relatively high-risk levels in comparison to other financing types. This is one reason why fewer lenders take on business lending. However, just like any loan, creditors determine the funding amount and terms based on borrower risk.
When you apply for business financing, you can anticipate an evaluation of your business and personal credit history, and a careful analysis of your company’s financial performance, including historical cash flows, operational growth potential, and overall health of your enterprise. Business financiers prefer lending to companies with documented success.
The stronger case your business makes for being a low financial risk, the less collateral you’ll have to stake. But what is business collateral, and how does it impact the business loan approval process? Let’s take a more detailed look at this subject detail below.
What qualifies as collateral for business loans?
Business loans are frequently secured by borrower assets. These assets are taken from the business’s balance sheet. They’re called collateral or assets the borrower pledges in exchange for a capital infusion to be repaid at a specified rate and term. Once the business repays the total amount borrowed, the credit releases any interest in the assets stakes as collateral.
Businesses can use any asset they own and control any as collateral commercial collateral loans. The only condition is that the collateral can’t typically have any previous security attachments or other outstanding claims like judgments and tax liens against the property.
The primary benefit of collateralizing your business funding is that it gives you access to more borrower options at more favorable terms. If you can pledge high-value assets for your business loan, you’re more apt to find a better interest rate and lower overall borrowing expenditures because the lender will feel more secure in its investment.
Since mortgages constitute the lion’s share of US debt, many assume that the majority of business financing created is similarly secured by commercial real estate. While real estate assets frequently do serve as securities for business loans, they’re hardly the only asset you can pledge as security for a commercial collateral loan.
Depending on your credit circumstances and the value of your business asset holdings, you can use equipment and machinery, inventory, company receivables, and more if you cannot or do not want to pledge your real estate in exchange for a business loan. The collateral types most preferred by lenders are liquidatable assets with stable and predictable sales values because they offer the most long-term security.
How does collateralized financing help businesses succeed?
Lenders favor collateralized loans because you’ve your personal interest in the successful performance of the loan beyond just your good name and credit rating. Whether it’s your machinery, inventory, or commercial real estate, you can leverage your business assets to gain access to the most attractive business financing offers.
Businesses similarly benefit from property-based financing because it helps them cover operating expenses and other overarching objectives like strategic position and growth planning. Commercial collateral loans are always a reliable entry point for recent upstarts and existing small businesses with limited seasoning.
Apart from strategic growth planning, collateralized commerical business financing can give businesses access to the working capital they need for larger projects such as expansion and merger acquisitions. Companies that lack extensive business credit profiles tend to benefit from asset-secured business financing the most. The secured loans give them access to funds they need to grow while helping them build a positive business credit history.
If you choose to use your invoiced accounts receivable as collateral, the funds currently owed to your business, the odds of you negotiating favorable loan terms are high. Accounts receivable loans typically offer more flexible repayment terms, including longer payback periods, flexible payment options, and even custom options that cater to your unique business.
Regardless of the collateral type you decide to go with, pledging your assets to secure a business loan gives you more leverage in negotiating a low-cost business loan that allows you to continue expanding your organizational footprint and driving profits. Once you’ve established a positive relationship with your lending, including a timely payment history, you’ll find the process of securing additional funding even easier the next time you need it.
You’re more likely to find a business loan approval after pledging your own assets, especially as a newer small business. In today’s unpredictable economic environment, most need business lenders more than a verbal agreement to extend credit, making coming among startups and growing small businesses.
Collateralized financing similarly favors companies that carry hefty debt levels. The asset-based loans are often leveraged by financially struggling organizations, seasonal business models, and businesses that have experienced an unexpected shortfall to service their existing debts.
Companies subject to abrupt shifts and demand, even if relatively predictable as in seasonal business, are generally considered riskier, making collateral a necessity before a lender can approve funding.
Applying for collateral-based funding
Since the 2008 Global Financial Crisis, fewer banks have been willing to offer business financing. The alternative lending space, however, has taken up a lot of this slack by supplying financing solutions to businesses with a range of credit and asset situations.
When you apply for property-based business financing from a bank or non-bank lender, you’ll have to disclose the purpose of the loan and the tangible assets you intend to pledge as collateral. These items must be owned free and clear by your company, unless otherwise approved, and they need to evidence a reasonably high and stable resale value.
It’s worth mentioning that you can use commercial collateral loans to secure newly acquired assets, such as updated equipment and commercial real estate. When agree to sign on to an asset-based loan, the creditor asks you to sign a lien agreement securing the loan, not unlike a conventional real estate mortgage.
As long as the business lender is in the first lien position, the lender can reclaim the collateral to recover on their investment by recapture the unpaid loan balance after a default. It, therefore, doesn’t matter if you’re using new assets as collateral or staking your existing holdings to secure the loan.
If the borrower doesn’t pay as agreed, the creditor will file foreclosure on the collateralized assets. After the property sells at auction and the lender recovers its legal and recovery fees along with its owned accrued interest and penalties. You’ll receive the remainder of any funds left over.
How much collateral is required?
Lenders use the loan-to-value (LTV) ratio to determine how much collateral they need before releasing the funds. The LTV ratio is established by the estimated or appraised value of the business assets you’re pledging as collateral. Loan amounts can often depend on the type of collateral itself, with highly tangible assets gaining the most favor among business lenders.
Most creditors rarely exceed 80% loan to value when granting property-backed loans. For example, if the value of your asset is $100,000, then your maximum loan amount would be $80,000 under an 80% LTV ratio.
Ideally, you should have at least 20% equity in your assets, display positive credit history and strong ability to repay, and have at least some working capital before applying for a collateral-based loan. Different lenders give their own weight to various approval factors, which is why it’s important to research every viable loan option.
Need more information on collateralized financing for businesses?
Secured, property-based lending is a great way for upstarts and smaller companies to gain quick access to additional working capital. If you are ready to apply for collateralized business financing, reach out to New Bridge Merchant Capital to discuss the qualification process today.
Get started today by seeing what you qualify for online. Or, to speak with a business lending specialist now, call us at 844-228-0593.
Contact New Bridge Merchant Capital
If you need access to working capital for your small business, you should speak with the finance professionals at NewBridge Merchant Capital. We can help you understand whether you are suitable for an unsecured business line of credit. Call us today at (612) 254-8375 to learn more.
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Frequently Asked Questions:
What Can A Term Loan Do For My Business?
A term loan can provide your business with a lump sum of funds to finance capital expenditures, business expansion, or working capital needs. It typically has a fixed interest rate and a repayment period of 1-10 years, providing predictable monthly payments to manage cash flow. It can help build business credit and improve overall financial stability.
How Long Does It Take To Process My Loan Application?
Cash advance/Term Loan application processing time varies, but it’s typically faster than traditional loan processing. Some lenders offer quick approvals, with funding available in as little as 24 hours.
Am I Penalized For Repaying My Loan Early?
Early repayment of a cash advance loan does not result in a penalty. Some lenders may offer discounts for early repayment or renewing with them before the full term expires. It’s important to review the loan agreement and understand all fees and terms before accepting the loan.
What Paperwork Do I need For An Online Business Loan?
To start the process the typical documents include our application filled out and the last three months of your business banking statements (all pages). In order to close (fund your account) we will need a valid color copy of your driver’s license, a voided check from the account supplied to us and proof of ownership for the business.
Are There Other Fees Involved In An Online Business Loan Application?
Origination fee: This is a fee charged for processing and approving the loan application, which includes verifying a borrower’s information. This is fee is offset by the funding amount at completion of the loan.
Annual fees: (lines of credit): Some lenders charge an annual fee to keep your business line of credit open and active.
Application fee: Lenders sometimes charge a fee for processing your loan application. Put simply, you get charged just for applying. Luckily, these fees don’t seem to be the status quo for business lenders. We rarely see banks or online lenders charge application fees.
Missed payments: This one’s simple. If you miss making a payment on your business loan, your lender might charge you a fee. Most lenders charge a fixed late fee, but many charge a percentage of the missed payment as well. If they do not charge a percentage then they will require a “make up” payment to be made. The vast majority of business loans include late payment fees. If a specified amount of payments (usually 5) is missed, you may go into default status and be charged an additional fee. For more details on how this please reference the Appendix A of the agreement and make sure to read the agreement in full.
How Do I know Which Loan Is Right For Me?
Purpose of loan: Determine why you need the loan and what you will use it for.
Loan amount: Determine the amount you need and make sure the loan amount fits your budget.
Repayment terms: Consider the length of time you have to repay the loan and what your monthly payments will be.
Interest rates: Compare interest rates and determine which one offers the most favorable terms.
Terms and conditions: Read and fully understand the terms and conditions of the loan before accepting it.
Consult with a New Bridge Merchant Capital Advisor to help you make an informed decision.
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