The Important Role Collateral Plays in Commercial Lending

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The Important Role Collateral Plays in Commercial Lending

fix flip hard money lender level 4 funding llcMany things will play a factor when it comes to commercial lending. But collateral may actually hold a lot more weight than you may think.

First, let’s explore exactly what collateral is, especially when it comes to commercial lending. Collateral is often times called the second source of repayment. That is because sometimes unforeseen issues come up and prevents you for making the payments on your debt. This is where collateral comes in and is used as payment on the debt.

Collateral needs to have high monetary value to be accepted as repayment when you are unable to actually make payments. The collateral is going to be evaluated and reviewed, not only at the beginning of the commercial lending process, but during the entire lifespan of the loan. This ensures the lender that the value of the collateral will remain the same. But remember, cash flow is usually looked at first, then collateral is concerned secondly. But it can still enhance the offer and increase your credit limit if the collateral has high value.

Commercial lending isn’t always cut and dry. That is why collateral can really play a role in the lender’s decision and offer. Lenders often look at the high value collateral as extra security which reduces the risk and make the offer even greater. Things like property appraisals, company equipment and statements on security accounts are considered collateral.

The most common form of collateral in commercial lending is real estate.

Real estate property is the most accepted form of collateral. Since there is a high demand for commercial real estate, there is usually a high appreciation for this as collateral. But other things are also looked at as good forms of collateral like business equipment. Keep in mind that the bank will assess the equipment to determine the value of it to be accepted as collateral.

Many lenders will take a look at other forms of collateral when it comes to commercial lending.

Even though it is the less common form, cash is sometimes accepted as collateral. This usually only occurs when a business doesn’t have any real estate or business equipment to offer as collateral instead. It is still best to have some type of real estate or equipment to offer as a second form of payment on your loan. Since cash is the least common form, it is also not accepted often. Without having many assets that have high value to be used as collateral, many lenders may think that it is a risky situation to offer extra funding to you. But if all else fails, try to at least use your excellent credit scores to get your foot in the door. You can always make negotiations to the terms and conditions later on during the process.

Dennis Dahlberg
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177 NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

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