The Power of Collateral Analysis For Your Business Loan Approval
Do you have an extensive collateral analysis on hand that’s ready to give your lender at a moments notice? That’s okay, most don’t. The fact is your collateral plays a crucial role in securing business loans. Your long-term and short-term assets provide the security basis for lenders and can significantly impact the approval associated with your loan application. Understanding the power of having an updated collateral analysis is essential for business owners seeking financing.
What is a Collateral Analysis?
A collateral analysis involves evaluating the assets that your business offers as security for a loan. This analysis assesses the value and quality of short and long term assets to determine its suitability for securing the loan. Once a value is determined, lenders will determine the highest advance rate they’re willing to lend on the collateral. Some lenders have higher than normal advance rates, which improves the available working capital you may access. Think this isn’t important? We know that Private Equity firms conduct thorough collateral analysis on every business transaction. So, it must be important!
Why Collateral Analysis is Important
Provides More Availability: Your availability on your credit facility is directly impacted by the lender’s advance rate on the collateral. A strong analysis gives you the ability to know how much a lender will lend before the loan application.
Security for Lenders: Collateral offers security for lenders, reducing their risk and increasing their confidence in approving the loan. Having a strong analysis gives lenders more confidence in your collateral, which may increase your availability.
Improves Loan Approval Chances: A thorough collateral analysis can improve your chances of securing a loan by demonstrating that you have valuable assets to offer as security.
Affects Loan Terms: The quality and value of your collateral can affect the terms of your loan, including the interest rate, loan amount, and repayment terms.
Types of Collateral
Accounts Receivable (AR): Outstanding invoices that your business expects to collect can be used as collateral. This is common in asset-based lending (ABL) and AR financing credit facilities.
Inventory: Inventory that your business holds for sale can be used as collateral. This type of collateral is often used in ABL credit facilities.
Equipment: Business equipment, such as machinery and vehicles, can be used as collateral. This is common in equipment financing.
Real Estate: Real estate owned by your business can be used as collateral. This type of collateral is often used in commercial real estate loans with both owner-occupied and non owner-occupied type of collateral.
How Green Zone Conducts Collateral Analysis
At Green Zone Capital Advisors, we conduct thorough collateral analyses to evaluate the value and quality of your assets. Our process involves:
Asset Evaluation: We assess the market value of your business’s assets, including accounts receivable, inventory, equipment, and real estate. We determine probable advance rates and identify which lenders are likely to approve with higher advance rates so you can enjoy more availability on your credit facility.
Collateral Suitability: We determine the suitability of your assets as collateral based on their value, liquidity, and potential for appreciation or depreciation. Some lenders like specific types of collateral over other lenders, and we know what collateral is best matched with each lender. Collateral Suitability is incredibly important to our process.
Comprehensive Credit Memo: We include the findings of our collateral analysis in a comprehensive credit memo, which is part of the incredible Green Zone process of matching your business, working capital needs, and collateral type to specific lenders.
The Green Zone Advantage
Green Zone conducts thorough collateral analyses as part of our capital process to help you secure the financing your business needs. Need business funding or want Green Zone to manage your lender relationships? Lets get started now by clicking the button below.
