Secured Loans For Businesses With Bad Credit

There are a number of loans that businesses with bad credit can get if they are willing put up property or a percentage of their business as collateral for the loan.

The lenders are willing to give these loans because they can seize the collateral and sell it if the loan goes unpaid. These lenders operate much like a pawn shop except that they lend to business instead of individuals.

For businesses with bad credit secured loans can be an excellent source of financing.

Accounts Receivable Loans

There are many companies that will take accounts receivable as collateral in exchange for a business loan. Accounts receivable; which is also called AR,  is unpaid bills or IOUs from a businesses’ customers.

In these loans, the business agrees to give the lender all or part of future receipts form accounts receivable in exchange for the loan. The drawback to these loans is obvious; the business forgoes part of its future profits in order to get the loan.

A business should only take out this kind of loan if its owners are confident they can operate without the accounts receivable used as collateral for the loan. If they can’t pay the bills without that AR money coming in, business owners should look elsewhere for financing.

Secured Loans On Equipment & Vehicles

Another kind of loan is secured loans on equipment or vehicles that the business owns. What these loans are is basically a pawnshop for business. The lender uses the equipment or the title to the vehicle or equipment as collateral for the loan. If the borrower doesn’t pay the loan off in a set period of  time, the lender takes possession of the equipment or vehicle.

Businesses should only take out this kind of loan if they know  they can pay off the loan in a timely manner so they don’t lose the vehicle or equipment.

Inventory Loans

A very similar kind of secured loan is the inventory loan in which the lender uses inventory as collateral for the loan. Some of these lenders operate much like a pawnshop, they’ll take the inventory to their warehouse and hold it there until the borrower pays off the loan. Others will let the borrower keep the inventory but have them sign an agreement allowing the creditor to seize it if the loan isn’t paid.

Only businesses with excess inventory that they can spare should sign these kinds of loans. Such loans can be a  good source of finance for business with excess inventory.

Mortgages and Equity Loans

Another kind of loan that businesses that own real estate can consider is to take out a second mortgage or equity loan on their property. The advantage to these loans is that a business will have a long time to pay them off.

The disadvantage is that the business will be faced with a higher mortgage payment each month. A business should only take out this kind of loan if its owners are confident they will have the cash flow to meet the increased mortgage payment.