Forms of Short-term Financing/Collateral
Collateral[edit | edit source]
To the extent that worthwhile assets are available, adequate collateral is required as security on all bank loans; however, banks will generally not decline a loan where inadequacy of collateral is the only unfavorable factor. Collateral can consist of both assets which are usable in the business and personal assets which remain outside the business. Borrowers can assume that all assets financed with borrowed funds will collateralize the loan. Depending upon how much equity was contributed towards the acquisition of these assets, the lender also is likely to require other business assets as collateral. Although banks may require all, SBA loans definitely require personal guarantees by the owner or other individuals who hold key management positions.