Should You Use Your Assets as Collateral?

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When searching for appropriate funding to launch your first business or take your existing operations to the next level, it’s commonplace for lenders to ask you to put up your own assets as collateral. This can vary from facets of the business itself such as premises, equipment or intellectual property, to personal possessions, including your home, car or stocks and shares.

Whether or not it’s a good idea to pursue the option of asset finance when securing a loan will depend entirely on your circumstances. What makes sense for one business may not for another, so it’s essential you weigh up the pros and cons, as well as the risk involved with regards to the market climate and your own company’s value, before plumping for a decision. Here are a few areas to consider:

  • The total worth of your assets. You might think an asset is worth the price you paid for it, but a bank will value it at current market price – and as a general rule, they’re inclined to be conservative in the extreme in their estimations. Keeping detailed records of your assets’ worth over time is a good way to demonstrate its value and secure favourable terms on the loan.
  • The risk involved in losing those assets. In any business venture, there is the possibility that it will turn sour – and if you stake your house or car against it, you may end up losing one or both. Make sure you’re aware of the level of risk likely to be involved in the collateral loan and consider whether you’re prepared to meet it.
  • The fine print of the agreement. Even if your business does flourish, it may become strangled under the terms of an unfavourable loan. Make sure you only borrow what you’re sure you can afford to pay back and fight hard to negotiate favourable terms for yourself (if possible). In any case, make sure you understand the fine print of the agreement to avoid nasty surprises down the line.
  • The alternative options on the table. It might seem like staking the house on your business is the only way forward – but that might not be the case. Aside from traditional sources of finance, you can also look into the possibilities afforded by peer-to-peer and crowdfunding, as well as invoice financing or equity financing. Educate yourself on the options before making a decision.

Here to help

Ultimately, the decision to use your assets as collateral to gain the funding your business needs is one that rests with you. As it will be your possessions and livelihood on the line, only you are able to say with certainty whether it’s the right choice for your situation.

That’s not to say that we couldn’t all use a helping hand now and again. At Genie Lending, we have the contacts, the experience and the knowhow to help you find the right financing solution for your needs. To learn more about how we can help, get in touch with us today.