Does giving collateral lower your Business Loan Interest rate?

Does giving collateral lower your Business Loan Interest rate?

Entrepreneurs require sufficient funds to kick start their business. Most entrepreneurs liquidate their years of savings to fund their business idea. However, this isn’t a wise decision as medical exigencies can arise anytime and would require instant cash flow. Keeping this in mind, a small business loan is considered as the safest and the best funding option for the startups. While availing a business loan, entrepreneurs should make a note of the business loan interest rate. This is because even a slight reduction in the interest rate can lower the overall cost of borrowing in the long run. Therefore, while availing a business loan, entrepreneurs should compare various loan offers provided by different financial institutions and settle for a business loan with the most competitive interest rate.

Advantages of providing collateral with your business loan

There are various factors such as your credit score, business plan, business experience, etc. that determine your business loan interest rate. In addition to that, the collateral you pledge while availing a business loan also plays a crucial role in determining your business loan interest rate. The higher the value of collateral, the greater will be the benefits. Highly valuable collateral like real estate, equipment, machinery, deposits or home equity gives security to the loan providers. After examining the collateral, lenders may grant you a higher loan amount at lower interest rates.

Since business loans are secured loans, lenders are at comparatively lower risk while sanctioning the loan amount. This is because in case the borrower fails to repay the loan amount, the lending institution holds the authority to seize the pledged collateral. Therefore, the interest rate charged on a secured business loan is lower as compared to an unsecured business loan. Another major advantage of a secured loan is that its eligibility criteria are not as stringent as that of an unsecured business loan. 

Therefore, if you are an established entrepreneur with a well-defined business plan, you can consider availing a business loan for your business expansion. It is crucial to have a business plan because you are risking a lot if you happen to default the loan. Also, you must assess your repayment capacity carefully before applying for an unsecured business loan. Make sure that you do not over-borrow, avail a loan amount depending upon your business requirements.

Let us have a look at some of the additional benefits of availing a secured business loan

Faster Processing

If you are in urgent requirement of funds, a secured business loan can be of great help. As lending money carries lesser risk at the lender’s end, lenders do not hesitate much to lend you the required amount. Therefore, secured business loans can help you can get the loan amount faster as the lender only needs to evaluate the market value of the collateral before approving your loan application.

Better Repayment Terms

The loan tenure of a secured business loan is longer as compared to unsecured business loans. You can repay the loan amount through easy monthly installments. Moreover, while availing a business loan, you can also get an estimate of your EMI with the help of an online business loan calculator. By calculating your EMI beforehand, you can plan your monthly expenses wisely and make timely repayment of the loan amount.

Scope for Negotiation

When you pledge collateral while applying for a loan, getting a loan becomes easier. Also, pledging collateral would also provide you a scope of negotiation. You can negotiate the loan amount and the interest rate with your potential lender while availing a secured business loan.

Eligible despite Low Credit Score

In case of a secured business loan, lenders generally provide loans even to borrowers with a low credit score. This is because, in the case of non-payment of EMIs, the lenders can sell the collateral to get the loan amount back. However, it is always advisable to check your business loan eligibility before applying for a business loan. You can check your loan eligibility with the help of an online business loan eligibility calculator. This will reduce the rejection chances of your business loan application.

Categories: Business

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