Business Resource Library | DreamSpring

Why Collateral Is Your Ticket to the Best Loan Terms

Written by DreamSpring | November 28, 2023

DreamSpring is committed to helping clients secure the best possible rates on their capital. Because we understand that the financial world can be complex, we’re here to find the right solutions to assist in our clients' success. One of these solutions when borrowing funds is the effective use of collateral.

What Is Collateral? 

Collateral is an asset or property that a borrower pledges to secure a loan. This asset serves as a form of security for the lender, assuring them that the borrower will repay the loan as agreed. Should the borrower default on their payments, the lender can claim the collateral to recover their losses. Types of collateral often include:
 
  1. Cars: Automobiles, pledged by providing the title to the vehicle, are a popular form of collateral.

  2. Equipment: Equipment and machinery — including those acquired to support or expand business operations — can be used as collateral for loans.

  3. Furniture: Personal property like furniture, electronics, or other valuable items can be used as collateral for loans.

  4. Real Estate: Homes and property are commonly used as collateral, enabling individuals to leverage their homes for lower business loan rates.

There are also other options for collateral that your loan officer can discuss with you, too.

 

The Role of Collateral in Securing Better Rates

When borrowers pledge collateral, they reduce the risk for lenders; this often leads to more attractive loan terms. Lower interest rates, extended repayment periods, and increased borrowing capacity are all benefits that borrowers with collateral may be able to take advantage of.

A business loan secured with equipment as collateral may come with more favorable terms due to the reduced risk for the lender, with lower interest rates compared to unsecured personal loans. “Unsecured” loans refer to loans that do not involve collateral; they depend entirely on a personal guarantee, often assessed through a Fair Isaac Corporation (FICO) Score, which usually leads to higher interest rates.

 

At DreamSpring, we’re dedicated to helping our clients make informed financial decisions. Incorporating collateral into your financial strategy can make all the difference, helping to bridge the gap between your business dreams and reality. By recognizing the role and value of collateral, you can make the most of your financial opportunities.

 

 

 

 

 

 
 
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