Financial Word of the Week (Small Business Month): Collateral
Collateral is a company’s assets that are pledged to ensure payment of a financial obligation. Collateral can include business or personal assets such as equity in your home. Business collateral typically includes equipment, inventory, vehicles and accounts receivable. As we explained in our post about the “Five Cs of Credit” (one of which is collateral), you may be required to sign a guarantee with the promise to repay the loan if you cannot repay it with the profits from your business.
Sometimes a Small Business Administration (SBA) loan could be used if there is a collateral short fall within the organization. An SBA loan has other requirements‡ as well.
A company must understand that the collateral they put up for a loan could be seized if a company defaults on a loan. Also remember that most lending institutions require your collateral value to be more than the loan amount.
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UMB Financial Corporation (Nasdaq: UMBF) is a diversified financial holding company headquartered in Kansas City, Mo., offering complete banking services, payment solutions, asset servicing and institutional investment management to customers. UMB operates banking and wealth management centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska, Arizona and Texas, as well as two national specialty-lending businesses. Subsidiaries of the holding company include companies that offer services to mutual funds and alternative-investment entities and registered investment advisors that offer equity and fixed income strategies to institutions and individual investors.