Securing Small Business Loans by Using Collateral

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Securing the financing you need for your day-to-day operations can be the difference between business success and failure..

One of the most common ways small business owners get a secured loan is to use their house as collateral. They may get a second mortgage to tap the equity in their home or refinance and cash out the equity to use in their small business. This is, of course, a risky strategy, because if the business fails, the business owner can lose his house as well. You can also use other property to get a secured loan for a small business, such as a boat or a rental property you own.


Another way to get a secured small-business loan is to pledge collateral from the business itself. That could be the building that houses the business if you own it, equipment and fixtures or inventory. This can be a good strategy, because you aren't risking personal assets, but unless your business is established and successful, this may not be an option.


A better option for a small-business loan may be an unsecured loan. Unsecured loans do not require collateral and are instead backed only by the borrower's credit worthiness and promise to pay. Such loans typically have higher interest rates and lower maximum loan amounts.


One of the quickest and easiest ways to get an unsecured loan for your small business is to get one or more business credit cards. Business credit cards offer you flexible payment terms and the ability to borrow as much or as little as you need multiple times over. You also won't likely risk your business assets if you fail to repay the debt. But check with your attorney, just to be sure.