Article by Roger Schlueter
Collateral for the Business Loan has always been a touchy subject with borrowers. The Borrowers Collateral usually does not add up to the same amount as the banks collateral amount. The first way out of any loan for the Banker is the Cash Flow of the Business. The business pays down the loan with interest and the bank makes money. The second way out for the Bank is to Liquidate or Sell the Collateral and pay down or pay off the loan.
The Banks lost money on many loans in the years of 2009 thru 2011, and do not want to repeat the losses on loans made this year. They have made money on loans this year and are more careful on the Second Way Out of Business Loans.
The Banks in years past and today will utilize the SBA Guarantee for shortfalls in many areas of a Business Loan. These Areas are Down Payment, Credit, Collateral. The banks must have Cash Flow on a Business Loan – the First Way Out. The Small Business Administration has been used to bolster the Collateral on many loans as well as the Credit of the Borrower and the Down Payment.
What I am seeing is that the bank is relying on a larger amount of Collateral even if they are using the SBA Guarantee Programs. The SBA will approve the use a Supplier of a Borrower as an appraiser of Machinery and Equipment. This is easy to get because the Supplier want to get more business in the future. Some Banks are using costly Equipment Appraisers even though they are going through the SBA Guarantee Programs. This Trend will lessen as the Economy Improves.
Always bring up the SBA Guarantee Programs if the bank is uncomfortable with the Collateral Value on your business loan. Many banks do not consider the SBA and look for a Quick Turn Down. This has been an overview of Collateral. I have a more detailed Collateral Article in this blog that covers Amounts of Collateral for different Asset Classes.
Please go thru the Blog for any Questions or Email roger@rogerschlueter.com or go to my website at schlueterfinancial.com