Any loan provider will seek security, which means a guarantee of some kind that they will get their money back.
For business finance, the amount of security required depends on the perceived level of risk. Lenders will asses:
- Credit scores and credit-worthiness
- Evidence of a coherent and compelling business plan
- A range of financial and legal documents including leases, licenses. tax returns, articles of incorporation and official identification
- Cash-flow within the business
What Kind of Collateral is Needed for a Business Loan?
Lenders are generally not concerned about the nature of assets to be used as collateral, as long as they have tangible value.
Naturally, they are seeking to protect themselves in the invent of insolvency, to ensure they do not lose money.
Assets can be cash, paper assets such as stocks and bonds, even accounts receivable.
Assets like property are known as hard assets. While these are perhaps the most common means of collateral, they require more work to liquidate than paper assets, as well as third party valuation, and are hence discounted more heavily by lenders.