Beyond Property: What Else You Can Use as Collateral to Secure a Business Loan
April 07, 2025 | Last Updated on: April 07, 2025
By Debopriya Sarkar
For many small business owners in the U.S., getting funding is key to survival and growth. From hiring staff to buying equipment, business loans cover major expenses. Among these, secured loans are one of the most common options. These loans require you to back the loan with an asset—called collateral—like real estate or equipment. In exchange, you get better rates and terms. However, today small businesses aren’t limited to just property. Lenders now accept a wider range of assets as collateral. This helps more entrepreneurs qualify and access the money they need. This article breaks down different types of collateral beyond real estate and explains how you can use them to get a secured business loan or secured business line of credit.
What is a Collateral Business Loan?
A collateral business loan is a secured loan backed by assets you own. This means if you default, the financer can seize your assets to recover losses. It lowers the risk for them, so you often get lower interest rates, longer repayment terms, and bigger loan amounts.
These loans work well for owners with limited credit or those who want better terms. The value and type of asset you use affects the loan size and conditions. Common forms include a secured business loan, secured business line of credit, or even a secured personal loan if you mix business and personal finances.
The key benefit? You don’t always need cash upfront—just assets and it helps build your credit history for future loan options.
Types of secured loans include:
- Lines of credit
- Equipment loans
- Commercial real estate loans
These can be backed by both traditional and non-traditional collateral.
Who Should Apply for a Collateral Business Loan?
A secured loan can be a smart move if:
- You own valuable assets but have limited cash
- You want lower rates and better terms
- You’re a new business with little credit history
- Your business has a spotty credit report or past delinquencies
If your credit score isn’t perfect, offering collateral increases your chances of approval. It shows you’re serious and willing to share risk. Whether you’re applying for a secured business loan, secured business line of credit, or trying to get a secured loan for working capital, this route can help.
These loans are also ideal for businesses in asset-heavy sectors like manufacturing, construction, or retail - where inventory or equipment can be pledged. They’re also useful for seasonal businesses needing a lump sum before peak season.
Collateral Business Loan Qualification Requirements
To qualify for a secured loan, you’ll need more than just an asset. Here’s what matters:
- Asset valuation: The collateral must have enough market value. It should cover or exceed the loan amount.
- Ownership proof: You must legally own the asset. Shared or disputed ownership doesn’t work.
- Business documents: Tax returns, cash flow reports, profit-and-loss statements, and a business plan.
- Credit score: Even with collateral, your score helps set interest rates and terms.
- Legal disclosures: Be prepared for asset liens and detailed documentation.
Some lenders also check if the asset is insured or if it can be quickly liquidated. Your loan terms will be tied to the quality and value of your collateral.
For instance, to get a secured loan using inventory, you'll need inventory records and appraisals. If you use equipment, the lender may request serial numbers, purchase invoices, and a list of usage details.
Pros and Cons of Collateral-Based Business Loans
Pros
1. Easier approval with bad credit
Using assets reduces the risk for the financer. If your credit score isn’t great or you don’t have much credit history, this kind of setup can help you qualify when unsecured loans might not. With a secured loan, you offer something of value that offsets the lender’s risk. This also means your creditworthiness matters a bit less upfront, making it a solid option for newer or struggling businesses.
2. Higher loan amounts
When you put up valuable assets, you can qualify for larger loans. The value of the collateral often sets the cap for your loan amount. For example, a construction company offering heavy machinery could access higher funds than it would without. This gives room for large investments in growth, inventory, or expansion. If you need a significant sum, a secured business loan backed by tangible assets is often the best path.
3. Lower interest rates
Collateral lowers the financer’s risk, so they reward that with lower interest rates. Compared to unsecured personal loans or credit cards, secured loans can save you thousands over the repayment term. That means more cash stays in your business. It’s one of the biggest advantages, especially if your business is managing tight margins or has seasonal dips.
4. Flexible asset types
There’s no one-size-fits-all rule. You can pledge a wide range of assets—real estate, equipment, inventory, or even accounts receivable. This flexibility helps businesses in different industries. A retail business might use stock, while a contractor could use tools or vehicles. As long as the asset holds value, there’s a way to use it as security.
5. Builds credit
Consistent repayments on secured business loans help build your business’s credit. That improves your credit report, boosts your creditworthiness, and can unlock better terms for future financing. Over time, you can move toward unsecured loan products with more trust from financers. This makes secured loans a steppingstone to long-term financial strength.
6. Longer repayment terms
Since risk is reduced, many secured loans offer more generous repayment terms. This means lower monthly payments, which helps with cash flow. It’s especially useful for new businesses that need time to become profitable. By spreading the cost, you can manage growth without straining day-to-day operations.
Cons
1. Risk of losing the asset
If your business can’t make payments, you lose the assets you put up. That could be key equipment, property, or even a savings account. This risk is real and can set your business back significantly. Always consider the value of what you’re putting on the line.
2. Slower approval time
Secured loans take longer to process. The financer has to assess the asset, get it appraised, and verify ownership. This makes the timeline slower than some unsecured personal loans or fast capital options. If you need funds urgently, this could be a downside.
3. Added paperwork
You’ll need to provide documents like title deeds, appraisals, insurance papers, and asset records. This adds time and effort to the process. If you’re not organized, it can delay or even block your application.
4. Restricted assets use
Once an asset is pledged, you may not be able to sell, move, or replace it without the financer’s permission. This can limit your flexibility, especially if the asset is key to your operations.
5. Not always cheaper
While interest rates are lower, the total cost of securing the loan can add up. Think legal filings, asset appraisals, and ongoing monitoring. Depending on the asset, these extras can eat into the benefit of those lower rates.
6. Value drop risk
If the value of your collateral falls, you may have to pledge more to cover the shortfall or refinance. Assets like vehicles and inventory can depreciate quickly. This can create financial strain.
Types of Collateral You Can Use to Secure a Business Loan
1. Equipment
Businesses in construction, manufacturing, or logistics often own heavy machinery and tools. These can be pledged as collateral. Since they’re essential for daily operations, they hold steady value. Financers prefer this type of asset because it can be resold easily if the business defaults. Just make sure the equipment is in good condition, with clear ownership records and recent appraisals. This type of collateral is particularly effective for securing term loans or equipment financing deals.
2. Inventory
If you run a retail or wholesale business, your inventory has value. It can be used as collateral for secured loans. You’ll need detailed inventory lists, valuation reports, and proof of ownership. Keep in mind that financers will look at how fast the stock can be sold. Seasonal inventory might be worth less after a certain date. This kind of asset suits short-term financing needs like restocking or prepping for peak sales seasons.
3. Accounts Receivable
Your unpaid invoices—called accounts receivable—can serve as collateral. This is common in industries with long billing cycles, like consulting or B2B services. In this setup, your financer gives you cash now and collects it from your clients later. It improves cash flow without waiting on payments. It’s often used for secured business lines of credit, giving you flexibility as you operate.
4. Cash savings or CDs
If you have a savings account or certificate of deposit (CD), you can use it as collateral. This is one of the cheapest secured loans to get. There’s very little risk to the financer, which means you could qualify for excellent rates. It’s a good option for businesses that are cash-rich but don’t want to dip into working capital. It also speeds up approval since no appraisal is needed.
5. Real estate (non-primary)
Even though this article looks beyond property, commercial real estate is still a solid option. Think warehouses, office buildings, or rental properties. These assets offer high value, which can help you access larger loan amounts. However, the approval process is longer due to appraisals and title checks. Also, be sure you can afford the risk of losing the property if something goes wrong.
6. Vehicles
Business-owned cars, vans, or trucks can secure a loan. They should be in good condition and preferably not too old. The financer will ask for registration papers, maintenance logs, and an independent valuation. This option is common in logistics, transportation, and delivery services. It works well for smaller loan amounts where the vehicle holds enough value.
7. Intellectual Property
Trademarks, copyrights, and patents can be valuable, especially for creative or tech-based companies. However, these assets are harder to value and often require proof of income generation. If your IP brings in licensing fees or underpins a product, it can serve as effective collateral. This is more common in niche industries and might need specialized legal documentation.
8. Investment accounts
Stocks, bonds, or mutual funds can be used to secure short-term loans. The financer usually places a lien on the account. This setup is ideal if you want to avoid selling your investments but still need cash. These assets fluctuate, so the financer may require a buffer in value to cover risks.
9. Future revenue or royalties
If you have predictable income from royalties, licensing deals, or service contracts, you might be able to pledge this future revenue. It’s tricky because it depends on reliability and contract terms. Still, some financers will accept it, especially for tech, entertainment, or franchising businesses. You’ll need to show consistent receipts and binding contracts.
Should Every Business Loan Have Collateral?
No, Not every loan needs collateral. Many businesses qualify for unsecured loans, especially if they have strong credit and steady income but secured loans offer better rates, longer loan terms, and access to larger amounts.
If you want to reduce your cost of borrowing or if your credit score is low, collateral helps. For risky industries or startups, a secured business loan or secured business line of credit can be the only viable option.
That said, weigh the risks. If losing the asset would hurt your business, explore other loan options like SBA loans or revenue-based financing.
Conclusion
Secured loans give small businesses flexible funding options. You’re no longer tied to just real estate. From inventory and equipment to receivables and IP, collateral options have expanded. For those looking to get a secured loan with better terms, using non-traditional assets can be a smart move.
Always assess your business needs, risk tolerance, and repayment ability before pledging assets. A well-planned secured business loan can push your business forward.
FAQs
Can I get a secured business loan without using real estate as collateral?
Many secured loans today accept alternative assets like equipment, inventory, or accounts receivable instead of real estate. This expands access for businesses that don't own property but still have valuable resources. By pledging these assets, you can still qualify for a secured business loan or a secured business line of credit with competitive rates and flexible terms.
Are secured loans cheaper than unsecured loans?
In most cases, secured loans offer lower interest rates because the lenders take on less risk but keep in mind, additional costs like asset appraisals or legal fees may affect the overall price. Still, they’re often more affordable than credit cards or unsecured personal loans, especially if you’re looking for the cheapest secured loans available.
How do I know which assets qualify for a secured business loan?
Eligible collateral includes business equipment, vehicles, inventory, or future receivables. The asset should be owned outright, easily valued, and legally transferable. To get a secured loan, you'll need documentation proving ownership and market value. Stronger assets usually lead to better loan terms and higher approval chances.
What happens if my collateral loses value over time?
If the value of your collateral drops, the financer may require additional assets or ask you to refinance the loan. This is a common concern with vehicles or inventory. That’s why it’s important to monitor your pledged asset’s worth throughout the life of the secured business loan to avoid surprises or added financial stress.
Can I use personal assets to get a secured business loan?
Some borrowers use personal property - like a vehicle or savings account - to secure a secured personal loan for business use. While this can help you get a secured loan, it also increases personal risk. If your business fails to repay, you could lose personal items that impact your home or family life.
