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What is a Collateral Loan & How Does It Work?

The rates on a typical business loan from the average business loan office can seem high or intimidating, especially if you already have other loans or lines of credit that demand your attention. It is important to realize that loan offices are essentially handing out huge sums of money to clients without much promise of anything in return, should they default and file for bankruptcy. In order to sidestep this potential issue of higher interest, you may want to consider using a collateral loan.

In simple terms, a collateral loan is a financial loan that is tied – or secured – to a valuable piece of property or asset you already own. Most people who use collateral loans, sometimes called secured loans, affix their homes or automobiles to the loan. When someone defaults on a collateral loan, the bank or lender can seize control of the collateral item.

In exchange for this “risked” property secured to the loan, a typical collateral loan will usually offer more money upfront with a minimal amount of interest. So long as the borrower makes the minimum payments on the loan and completes repayment without incident, collateral loans are fantastic. Small businesses with a steady amount of income that know they can repay a collateral loan often use them as an opportunity to expand quickly, buy a large amount of new equipment, and so on without worrying about losing out on interest payments.

When Not to Use Collateral Loans

If you are looking for a business loan, you may want to shy away from collateral loans if you are not confident in your ability to repay the loan and interest amount. If you default on a standard loan, you may be able to file for bankruptcy and keep your assets and property through that process. However, if you default on a collateral loan due to bankruptcy, you are likely to lose whatever property was secured to your loan.

At Green Ocean Solutions, we make it easy for you to find a loan that works for you. We want to ensure that you know all the terms and conditions of your loan so that you are not surprised later on. Contact our Los Angeles business loan office today to talk about whether or not a collateral loan is right for your business. You will find that our friendly and knowledgeable staff genuinely wants you to benefit from your loan.