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What can be "collateralized" in my small business when I need business debt financing?

The short answer is: Anything with any value can be usued as collateral when you need start up business financing or business debt financing.

Collateral is "an asset pledged to a lender until a loan is repaid," according to the Denver Business Journal. The Denver Business Journal goes on to define an asset as "anything that has commercial or exchange value that's owned by a business, institution or individual." In other words, anything owned by your business that has any intrinsic value on the marketplace, taking in to account the value that would be lost if the assets had to be sold off quickly, can be used as collateral on a loan toward your business.

When looking at what you may be able to use on collateral, it's important to consider how much money you're looking to have loaned to you and to look at the value of the assets you have available to use as collateral. It's also important to consider the risks involved. If you fail to pay off a lender, the items used as collateral can and most likely will be seized and liquidated very quickly, giving you little chance to intervene.

For example, say your business owns a database computer for which it paid $5,000. A bank may determine that the computer may only draw $2,000 if it had to be liquidated quickly, given the relatively quick obsolescence of computers - there's always something newer and better. Thus, the bank would accept your $5,000 computer as collateral on a $2,000 loan. In essence, you would be putting $5,000 on the line so that you can obtain $2,000 for use somewhere else in the business.

Another element to keep in mind is that collateral isn't limited to simply physical property. Accounts receivable, purchase orders and other debts owed to you by other people and business can be used as collateral. Insurance policies, collectables, furnishings and virtually anything with an identifiable cash value can be used as collateral, though accepted collateral will vary from bank to bank.

Robbi Gunter is a staff writer for Strong Business Credit - a free educational web resource for small business owners needing business loans and business credit cards.

Article Source: ArticlesBase.com - Business Debt Financing & Collateral