With the variety of alternative and innovative capital sources that are exploding onto the market with the Fin-Tech Boom, you may be surprised what items, assets, and materials within your business can be utilized as collateral to assist with business financing. For this article, I wanted to discuss innovative ways you can find collateral in your business to use as security for needed working capital.
Note On Unsecured Debt Financing
Unsecured debt financing allows you to be funded for business capital without the requirement of pledging various assets to use as security on the loan, advance, or line of credit. Unsecured Financing is usually the best way to go if you don’t have assets to pledge as security, however, expect the financing costs to be higher for these types of products. Types of unsecured financing products include the following:
Finding Assets For Secured Debt Financing
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Secured debt financing function like Asset Based Loans (ABL), which are programs that supply financing to your business using one or more of your assets as security on the loan (or line of credit) should you default during the payment cycle. There are traditional asset based lending programs from banks and credit unions, along with alternative asset based lending programs from alternative funders and lenders. In general, if you have one or more of the assets below, you might qualify for some sort of asset based lending program:
- Real Estate
- Recreational Vehicles
- Luxury Watches
- Luxury Hand Bags
- Fine Wine
- Business/Capital Equipment
- Heavy Machinery
- Computers and other Technologies
- Account Receivables
- Credit Card Processing Receivables
- Purchase Orders
- Life Insurance Proceeds
- Value of Stocks, Bonds, and Bank Accounts
Other than Purchase Orders and Receivables (both of which are funded through a form of factoring), along with Life Insurance Proceeds and the value of Stocks, Bonds, and Bank Accounts, each asset is underwritten beginning with an analysis of the estimated value of the asset.
Analysis would center on if the asset has any liens present, appraisal value, and if it can be sold off should the funder/lender need to pursue said action due to payment default. Depending on the asset, the LTV might range from 50% to 80% with a variety of different term options, depending upon if you are being underwritten by a traditional bank or an alternative funder. In addition, depending on the asset, the funder/lender might require safe-guarding in a storage/warehouse until the payment cycle is complete.
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