This is a question we get asked quite often. The answer is: not always. In determining whether or not you qualify for a business loan, there are numerous factors that are going to come into play. Everything from credit score to time in business, to annual revenue. And yes, in some instances, collateral is also one of these factors.
However, collateral isn't always required. If for instance, you opt to go for a merchant cash advance through an alternative lender, then no collateral is needed, as the loan amount is based on future income.
There is also the question of whether or not you should offer collateral if you're in a position to do so. Below are a few reasons why you might consider putting collateral down on a business loan.
Collateral can increase your chance of approval. Again, depending on loan type it may not be necessary, but if you can offer collateral and other factors such as credit score, for instance, are working against you, then this might up your odds of getting the loan. Your collateral needs to be something the lender can liquidate, so real estate, equipment and things of this nature.
Collateral might help you get more money. It stands to reason that if you're able to offer something by way of collateral then you may qualify for more money. By giving the lender collateral, you're effectively helping to secure the loan—this means less of a risk for them.
Collateral can also result in better rates. This isn't necessarily true in all cases, but having collateral when you apply for a business loan might get you lower interest rates or better terms overall.
Whether or not you are able to provide collateral, you might still qualify for a number of commercial lending products. At First Union, we offer short term loans, lines of credit, equipment loans and other such programs and you don't always need collateral to qualify. Call today to get started!