This post was originally published on On Deck
As a small business owner, accessing the right financing is critical to grow — whether expanding operations, purchasing equipment or handling unexpected challenges. If you’ve started exploring your options for business loans, you’ve likely come across the term “collateral” more than a few times. But what is collateral, and do you really need it to secure funding?
This guide will break down everything you need to know about collateral and how it impacts your financing options. Understanding collateral will help you make informed decisions about your business’s financial future.
What is collateral?
Collateral is an asset that you, as a borrower, pledge as security for a loan. It acts as a safety net for the lender, ensuring that if the borrower defaults (fails to repay the loan), the lender can seize the collateral to recover their losses. Essentially, collateral reduces the risk for the lender and increases the chances of approval for the borrower.
With business funding, collateral comes in many forms, depending on the lender’s requirements and the type of loan you’re applying for. Common examples of collateral include real estate, equipment, inventory or accounts receivable. By offering a form of collateral, you reduce the lender’s risk, which can
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