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3 Types of Collateral Security Used to Get Bank Loans

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There are different types of loans offered by bank and as a serious entrepreneur, it is your duty to know the right one for your business. There are two types of business loan for small-scale businesses, you have the overdraft loan and term loan. If you intend to start a small-scale business, read on as I summarize ways on how to secure a loan for your business.

Term loan is a type of loan released to you by the bank with interest that start counting right from the first day you are given. This type of loan is suitable for long term ventures and the duration of the loan ranges from 2-4 years depending on the terms and conditions.
Term loan is mostly suitable for purchasing products or equipment or building a warehouse or buying a commercial vehicle for your business. Whatever you choose to do with the loan, ensure it is well-spend on what will bring good returns on your investment.

On the other hand, an overdraft loan is loan that gives you the ability to make withdrawal from your bank account even if there is little in it. This means that, you still will be eligible for this loan even if you don't have money in your account.
Overdrafts are mostly short-term loans and the duration span from 6 months to 1 year, after which it will be renewed or reviewed. And as such, it should be used for business activities such as ; employee's salaries or making supplies to big corporations or to a reputable customer.
Note this; it is not advisable to use an overdraft loan to purchase equipment or build a house or even lease a property - rather go for a term loan.  

Let's look at some of the effective ways you can use to get that bank loan for your business.

         If you are able to secure contract to supply or purchase equipment from a well-recognised client or company with good business performance, will show to the bank that you are really serious about your business and that customers are confident and willing to pay for your service.

         A business plan it is said is the blue chip of a business. Which is also like a valuable asset in a business. In order to convince banks that loaning you money is not a risky affair, it pays to present them a well-written and detailed business plan.
Depending on the kind of business you want to go into will tell if your business plan will be a complex one or a simple one. A lot of consideration needs to be taken when writing your business plan, because banks, or investors or business associates will want to see details like, your startup cost, competition, market for your products or services, marketing cost, production cost, staff, potential income, potential obstacles, and short and long term goals.
          Take note that, the more you are able to provide answers to all those factors , the more comfortable and at ease the bank will be in granting you the loan that you seek.

           Collateral is an item of value. Collateral can be cars, certificate, expensive jewelry, shares and real estate properties.
            If you plan to take loan from the bank to fund your business, you may be ask to use something of value by the bank which they can sell to get back their money if paraventure you weren't able to pay back the loan. Banks usually ask for prove of ownership to be sure the valuable asset belong to you and often insist the value of the asset is of the same!e value or even more for the loan you applied for.

READ ALSO: Alternate Ways to Get Funding For Your Business

            In all, you need to make sure that the business you want to use your valuable asset to secure loan for is something that is less risky and can bring in good returns on investment. Good luck in getting that loan.


  1. Thanks Abode for this insight but is there no way I can acquire loan without any of this above listed collateral security?

  2. Hey, read this article here.