Final answer:
Lenders generally offer 50-80% of the collateral's value when providing a secured working capital loan. This percentage, the loan-to-value ratio, is important for businesses to consider as it determines the amount of the loan and the potential risk of losing assets.
Step-by-step explanation:
When obtaining a secured working capital loan, lenders typically lend a percentage of your collateral's value. The exact percentage can vary based on the lender's policies and the type of collateral, but it is common for lenders to provide 50-80% of the collateral's value. This ratio is known as the loan-to-value (LTV) ratio and is critical in determining the amount of money a lender is willing to extend against secured assets.
Collateral acts as a security for the lender. It can include assets such as property, equipment, or inventory. In the event of default, the lender has the right to seize and sell the collateral to recoup the loaned funds. Business owners should carefully consider the LTV ratio and understand that in a secured loan, they risk losing their assets if they cannot repay the loan.
Lenders require a loan application that details income sources and conduct a credit check. They may also require a cosigner or collateral to mitigate the risk of non-repayment. For small businesses, securing a loan through personal assets or by seeking angel investors is also common.