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Collateral for SME loans
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Oct 20, 2022

List of Acceptable Collateral for Small Business Loans

Starting a business or expanding an existing business requires capital. You may get this fund from assets that you currently have, like cash savings or profits from your existing business. In case you do not have this capital yet, you can get funding by applying for a collateralized loan.


What is collateral?


Collateral is an asset that you can pledge to a financial institution in exchange for a loan. Collateral loans are also called secured loans because the collateral serves as “security” in case you default on your loan or fail to make payments. Banks and non-bank financial institutions (NBFIs) often require collateral from financial borrowers.

There are various types of possible collateral, depending on the requirements of the financial institution. So, before you apply for the perfect loan to scale your business, you must check first their collateral agreement.


What are the Acceptable Collaterals of a Loan?


Collateral is something of financial value that can be liquidated or sold in case of non-payment of loans. What are the possible collaterals of a loan? Here are some of them:


Real estate

Land as collateral for a loan is common, but you can also have properties under your name, like a house or a condominium, as collateral. You would be required to show proof of ownership, like a land title, which you will surrender to the institution.


Vehicles

Cars or industrial vehicles can serve as collaterals. Some financial institutions require borrowers to leave the vehicles with them, while others will just ask for a copy of the official receipt and certificate of registration (OR/CR).


Equipment

If you have machines or equipment that you use for your business, you can use it as collateral. Medical equipment and machines, for example, are of high value and thus can serve as collateral.


Personal investments

Stocks, bonds, and mutual funds can be used as collateral. Similar to real estates and vehicles, you might also be required to surrender a proof of ownership to the lenders.


Jewelry

Accessories made of genuine gold or diamonds make great collateral as their value increases over time. Gold watches may also be accepted as collateral.


Collateral Requirements for Bank Loans and Online Lending



 

The types of collateral requirements depend on the institution offering the loans.

Bank loan with collateral often have stricter requirements and would only accept properties or vehicles. Lending institutions may accept items of lower value, like jewelry or equipment, aside from vehicles and real estate properties. They may ask you to submit additional requirements like the:

  1. A valid government-issued photo ID
  2. Audited Financial Statements
  3. Bank statements
  4. SEC/DTI Certificate of Registration
  5. Business permit/Mayor’s permit
  6. Proof of collateral ownership (e.g. Photocopy of OR/CR, land titles, or transfer certificate of title for condominiums)


The Pros and Cons on Collateralized Loans


Collateralized loans offer advantages and disadvantages. Let us look at some of them.


Advantages


1. It is easy to secure a collateralized loan if you have a low credit score.

Before banks or Nonbank Financial Institutions (NBFI) lend you money, they will first do a credit investigation to check your capacity to pay them back. If you have a low credit score or if they cannot find your credit history, they may not approve your loan application. However, with collateral, the chances of your loan being approved are high because the collateral mitigates the risks. Of course, this agreement still depends on the financial service entity.

2. Interest rates are lower.

This might not always be the case, but generally, the interest rate of collateralized loans is lower than non-collateralized loans because the collateral lowers the risks of non-payments. This may also depend on the value of your collateral.


Disadvantages


1. The loanable amount depends on the value of your collateral.

Normally, banks and non-banks would not lend you money higher than the value of your collateral. This is so they can avoid losses in case you default on your payment. If the value of your collateral is high, then that is good. Otherwise, you may not have enough funds for your business.

2. You may lose your valuable possessions.

You do not want to wake up one day being kicked out of your home because you did not pay back your loans. Be sure that you have a great business plan to pay back and regain possession of your assets.

3. You need to have tangible financial assets.

As much as collateralized loans are great for funding a new business or expanding an existing one, they may not be for everyone, as it requires having assets of value. For businesses that are starting, having such assets may not be possible at the moment. However, this should not stop small businesses from fueling their dreams. Fortunately, no collateral loans are available for SMEs.


Where to Get a Business Loan without Collateral


The needs of SMEs are unique. That’s why for small business loans, it is best to seek help from institutions specially made to address these needs. One of them is Esquire Financing Inc. or EFI, an NBFI established in 2011. EFI specializes in helping MSMEs take their business a notch higher by providing access to financing and sound financial advisory services. It differs from banks and other NBFIs in the Philippines through the advantages it offers. 

Aside from offering non-collateral loans in the Philippines, EFI offers flexible loan terms based on the cash flow of a business. Applying for a loan only requires a few documents, and loans are released in 7 days or even less! For the amount, EFI provides loans up to P10 million.

If you are interested in getting a business loan from Esquire Financing, just visit our loans application page and see for yourself how easy it is to get your loans approved. You may also check this link for the list of minimal documentation requirements. Start fueling your business dream today!