We are a Full-Service Business Financing Firm with Consultants
that Specializes in Collateral Based Loan
What is a Collateral Based Business Loan?
A Collateral Based Business Loan Loan is an Asset Based Lending product funded by lenders that funds Secured Commercial Business Term Loans to companies whereby the business or its owners pledge a fixed asset like a piece of Commercial or Residential Property. Additionally, some lenders may accept other fixed assets such as large commercial machinery equipment or large commercial vehicles as collateral.
The reason lenders prefer to use a property over other types of fixed assets, is due to the special set of underwriting parameters it takes to understand the value of the equipment. Unlike Invoice Financing programs that are based on constantly fluctuating receivables, fixed-assets are non-revolving and therefore the advanced amount is typically structured as a Secured Business Term Loan and will not fluctuate in value.
Generally, with this Asset Based Lending product, the net value of the asset that is being pledged is coupled together with the full business financials in order to determine the advanced amount and produce a new Secured Collateral Based Business Term Loan note.
Businesses take advantage of Collateral Based Loans for a myriad of reasons including as a means to secure larger loans offers, for longer funding terms, and for better interest rates. By pledging collateral, the lender takes less risk and can offer the company better terms and more substantial funded amount vs. with an unsecured loan.
Collateral Based Business Loans can be used by any established business with fixed assets to pledge and or owners willing to pledge fixed assets on behalf of the company.
Once a business has determined it is ready to pledge fixed assets along with the companies financials to secure a Collateral Based Business Loan, the next step is presenting a full file to a lender that provides this Asset Based Lending product.
Please keep in mind that it is up to the lender to determine the collateral being offered as a valuation. Most lenders tend to use the “fair market value” underwriting valuation model. An item’s fair market value is different from its book value, which is the value of an item as it is listed in a business’s books.
As it takes into account the fact the asset may have to be sold at and a discount in case of liquidation due to default of the loan. If a business doesn’t have enough assets to secure the loan it needs, business owners may pledge their personal property to obtain financing.
Typically valuation underwriting fees are paid for by the borrower as an up-front cost.
Loans offered against collateral generally constitute a percentage of the collateral item’s estimated market value. For example, if a business were to pledge a property valued in today’s market at $1mm, a lender would probably offer you around 50% to 75% of that value ($500k to $750k).
Collateral helps make loans less risky for lenders, as well as showing that the business is serious about repaying borrowed funds. However, other factors like credit score, income, and job stability will also influence the loan approval chances and the final offer.
Once the Collateral Based Business Loan is provided to the company the loan will be spread out over a set term. The payments will typically be monthly and include principal and interest. Once the loan is satisfied the fixed asset will be released from securing the Collateral Based Business Loan.
- Collateral Based Business Loans provide ready access to capital that can be used for almost any purpose such as buying additional real estate, increasing inventory, consolidating outstanding debt, or investing in expansion.
- Collateral Based Business Loans offer access to working capital within a couple of days at lower rates of interest than unsecured Business Lines of Credit or Unsecured Business Term Loans and also have a greater deal of repayment flexibility which can save thousands of dollars in the long term.
- Collateral Based Loans also provide several benefits to the lender. It offers an additional and lucrative income stream without much-added risk.
- Pledging a collateral asset can improve the chances of getting approved for a loan.
- By providing collateral the business demonstrates an extra level of commitment to repaying the loan. Loans secured with collateral also tend to have lower interest rates.
- The company must have a minimum of 6 months’ time in business yet, most lenders will require a min of 2 years.
- The Collateral must be a fixed asset owned by the business or its owners.
- The value of the fixed asset has to cover the current debt against it and the new loan provided with no more than 70% of the total equity combined
Additionally, these are some of the most common documents lenders require when requesting a Collateral based loan:
Business and personal bank statements
Business and personal tax returns
Profit and loss statements and balance sheets
Appraised Documents on the Fixed-Asset being pledged as collateral
Personal financial statement
Business plan and financial projections
to secure larger loans offers, for longer funding terms, and for better interest rates.
Available Capital Limit
Up to $5M per property
Standard Interest Rates or Cost
8% to up to 13.5% per property
Typical Underwriting TimeLine
5-10 Business days
Average Term Limits
12 to 36 Month Terms
In Closing, US Businesses and their owners hold billions if not a few trillion dollars in secured fixed assets. Companies could utilize those assets to obtain a Collateral Based Business Loan.
Whether it is to secure better financing terms or to entice a lender to consolidate existing debts. Troy Business Group is a Full-Service financing firm that specializes in working capital solutions focused on Collateral Based Business Loans.
Our team works with businesses across all industries to help them capitalize on the values trapped in their fixed-assets to obtain the best funding terms for their company in the market place. Please apply online, email us for an appointment, or call us today.
Our team is committed to helping your business grow with Collateral Based Business Loans and will guide you through the loan process each step of the way.