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Sunday, August 24, 2008

Daily Observations - Collateral Continued

If you recall on Thursday night I shared with you the calculations that a bank will use to determine available collateral. The reason I did this was for the average person to realize that what they believe they have in equity, they may not have. It is very important that any borrower who is planning on using real estate as collateral realize that the equity position that they thought they have may be very different after the bank does their calculations.

The above statement may sound very negative, but it's important to realize where you stand, while going for a loan. By knowing that collateral is an issue the borrower can offer other alternatives to the lender. There are even some lenders now that are strictly cash flow lenders and are not concerned with the collateral. However, even if the pledged Real Estate has no equity the lender may opt to secure their interest by putting a lien on the property.

Another source of collateral for a business purchase may be the actual equipment that the borrower is purchasing. For example, a manufacturer may have hundreds of thousands of dollars worth of equipment that can assist the borrower as pledged collateral. The only thing to remember is that the evaluation of the equipment must be as if it was sold at a force liquidation sale.

For more information on the different type of loans that loanforbiz offers please visit our website.

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