Is it possible to get Working capital without Collateral?
Working Capital demonstrates the level of liquidity required by businesses to cover everyday costs and any other costs required to manage procurements, creditor liabilities, or any outstanding payments. That’s when there could be a need to infuse working capital through a loan. Now, what must you know if you need working capital without collateral.
What is Collateral?
In simple words, Collateral refers to those substantial or intangible assets that a borrower offers as a security to the bank offering a loan. In the event when borrowers fail to repay the loan amount to the secured lender as per the loan agreement, the lender then can recover the money by selling the collateral i.e., the asset kept as security for loan to recover the loan amount.
Let’s consider an example: You want a certain amount as loan for your business and you decide to put your house as a collateral. In case you are unable to repay the loan or do not fulfill the terms of agreement then that lender has the authority to sell your house and recover the loan amount from you.
Types of Collateral:
- Gold and silver
- Accounts receivable
- Real Estate/ Real Property
- Any Heavy Equipment
Gold and Silver: For centuries, Gold and silver have been treated as valuable assets across the world. It is because of the fact the value of Gold as well as Silver keeps appreciating progressively. Gold was used as currency in earlier times and is still used as a yardstick to assess the growth of a nation’s economy. Therefore, you can offer gold jewelry, coins, bars and digital gold as collateral.
Inventory: Using inventory as collateral is called inventory financing. The worth of your inventory is assessed on the basis of its sale value. The insurance value of the inventory is also a way to calculate its worth. Therefore, one of the most well-known types of insurance that business moneylenders acknowledge is inventory.
Accounts receivable: Outstanding business invoices can be put as collateral and using Accounts Receivables as collateral to obtain a working capital loan is called invoice financing. Sometimes lenders establish the borrowers’ credibility based on the worth of the outstanding invoices or payments. Recovery of outstanding payments can pay for settling various liabilities including any debts such as business loans.
Real Estate: This is the most credible form of collateral as moneylenders consider real estate such as land or house property as solid collateral because of its appreciating value.
Equipment: One can use even heavy equipment, cars, boats, planes and so on as collateral as qualify as assets that can be liquidated easily. Also known as Blanket lien, this category of collateral provides maximum protection to money lenders. However, it could be riskier for borrowers due to high chances of losing their pledged assets if the borrowers fail to pay back. A blanket lien gives right to the money lenders to seize the assets in the event of non-payment of debts.
Eventually what can be utilized for collateral to get loan depends upon the sort of loan you are applying for your business, and what could be considered as worthy of being kept as collateral.
As a borrower, it is vital that you evaluate the consequences before you offer any guarantee to money lenders. You must carefully assess the risks involved with setting resources up for insurance and the consequences arising out of any inability to repay the loan.
It would be safer for you to sign up for a loan that you are sure to pay off easily. You must avoid taking a chance with your assets by any means. In case you are not sure what that credit invoices or guarantee includes, work with capital 9 experts to take care of your working capital worries and provide you with best possible solutions.