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Business Loans Start with Collateral (and Cash)

Small flower shop owner working on laptop in her shop.

Owning your own business can be very rewarding. One of the challenges most entrepreneurs face is funding. To grow your business, it’s essential to secure a business loan to buy equipment, real estate, or expand current operations. One of the best ways to secure that funding is with collateral.

Collateral refers to a piece of property or valuable equipment that you pledge to a lender to secure a loan to buy more equipment or property. You can lower the amount being financed by offering a cash down payment.

Having collateral reduces the risk to the lender and can help you secure more funding based on the value of the collateral. Always remember, the lender will not give you 100% of the collateral value. That’s because if you default on the loan, it will take considerable resources to auction or sell your collateral. Items that make the best collateral are real estate (business or personal), equipment, as well as cars or trucks.

Getting Credit
The amount of credit or financing you can secure usually depends on the value of the collateral. At St. Helens Community Credit Union, we look at each business and the collateral being offered on an individual basis. The collateral value and the amount we’ll lend depends on the type of collateral. For example, we may advance up to 75% of the value of real estate, or up to 80% of the value of equipment. However, those advance rates may be lower depending on the type of collateral and any other circumstances that may negatively affect the value.

At St. Helens Community Credit Union, we look at each business and the collateral being offered on an individual basis.“The value we place on the collateral depends on a lot of factors,” states Scott Novak, Commercial Department Manager with St. Helens Community Credit Union. “The type of collateral and its marketability are two major factors in our decision on how much we will loan. Interest rates will vary depending on the credit background of the borrower and guarantors, but also by the type of collateral and the length of time the loan will be repaid.”

Adding Up Your Collateral
Do you know how much collateral you have right now? Don’t worry, you’re not alone. But it’s a good idea to start a spreadsheet with your current business assets and a conservative value for each one. As you acquire more machines and property, add it to the spreadsheet. When you go to get a loan, you can simply give those numbers to the lender to start the conversation.

If you’re unsure of the value of your collateral, or if the loan is to be secured by real estate, St Helens Community Credit Union may hire an appraiser.

Comparing Offers
It’s always best to compare your lending options before moving forward. Pay close attention to the value the lender places on your collateral, the total repayment period, and the interest rate. If you have any questions, be honest with the lender. Business lenders, including St. Helens Community, want to help the local community grow. We want to see you succeed just as much as you do.

Need help with your small to medium-sized business loan? Give St. Helens Community Credit Union a try. We’ve been helping businesses throughout Scappoose, St. Helens, and Rainier, Oregon for decades and are ready to help you too. Membership and other account information can be found at shcu.org. Or call us at 800.275.6434.