Collateral for a Thomasville, GA business loan is something the business owns that a lender could claim if payments stop: unpaid customer invoices, vans, equipment or cash on deposit. Before a pledged van is sold, traded in or replaced, the partner has a say, since its lien is recorded on the van's title. Ashmont Advances passes requests to funding partners, and the partner that makes an offer decides what secures it.
What receivables, titled vehicles and equipment each offer a lender, one invented case of a 36-month loan secured by two cargo vans and both new pressure washers, what selling, trading in or swapping a pledged van before payoff involves, and how collateral can follow the purpose of the money.
Receivables, vehicles and equipment as business collateral
Each kind of collateral gives a lender something different to rely on:
- Receivables: invoices customers owe. Their value depends on who owes them and how old they are.
- Vehicles: a titled van or car, with the lender's lien recorded on the title until the loan is paid.
- Equipment: a machine identified by make, model and serial number, which can be the same machine the loan buys.
- Cash on deposit: money held in an account, which ties up the cash it secures.
In an invented example, a Thomasville, GA pressure washing company borrows $18,320 for two skid-mounted hot-water pressure washers. The partner in this invented case takes the company's two cargo vans as collateral alongside the new units.
Over 36 months at a 10.65% annual rate, the invented loan asks $596.74 a month. The invented payments reach $21,482.64 by the end, and $3,162.64 of that is interest.
Vans lose value every year, so a partner may count each one at less than its current price and may ask for proof of insurance naming it on the policy. Receivables carry a different risk: an invoice that is months past due may count for little or nothing, so a partner may look at the aging report before it looks at the total.
The VIN and serial-number list, and the insurance on each pledged van
In the invented pressure washing case, the security agreement lists four pledged items: the two cargo vans by vehicle identification number and the two new pressure washers by serial number. Checking each VIN against the van's title, and each serial number against the plate on the washer, before signing can save a correction later, when a van is sold or traded in.
Insurance is the other half of that list. Some agreements also cover the insurance payout if a pledged van is wrecked, which is one reason a partner may ask to be named on the policy. A line of credit secured by receivables has no title or VIN to check; its agreement points to customer invoices instead.
Before signing, an owner can read the collateral section of the agreement for these points:
- Which vans and machines it lists, by VIN or serial number, with the year and model of each van.
- Whether a pledged van can be sold or traded in before payoff, and what the partner has to approve first.
- Whether a newer van can be swapped in for one of the pledged ones.
- What insurance the agreement requires on each pledged item, and whether the partner must be named on each van's policy.
Keeping a copy of each van's current insurance card with the loan papers saves a search when a later sale, trade-in or swap comes up.
Selling, trading in or swapping a pledged cargo van before payoff
In the invented case, $6,764.39 is still owed after the 24th monthly payment. Say the company wants to trade in one van at that point for a newer one. A lien recorded on a van's title travels with the van, and a buyer will see it, so the sale, trade-in or swap is something to settle with the partner first.
- Ask whether the partner wants the sale or trade-in money paid toward the invented $6,764.39 balance, or a replacement van added in its place.
- For a swap, ask what the partner needs on the newer van first: its title, its VIN and proof of insurance.
- Ask whether a dealer taking the trade-in settles the lien with the partner directly, or whether the company has to arrange it.
- Ask whether selling one van changes the monthly payment or only the list of pledged items.
In the invented case, the two pressure washers stay pledged whichever van is sold or swapped, so the change touches only part of what secures the loan. Getting any change to the list in writing, with the new VIN, before the old van leaves the lot keeps the paperwork matched to the vans on the road.
Matching the collateral to the purpose of the loan
Collateral can follow what the money buys. In equipment financing, the machine secures its own loan. A term loan for a larger cost may rest on vehicles or other equipment the business already owns. A line drawn for stock or payroll leans on receivables and deposits.
Matching the two keeps the business from tying a long-lived asset to a short need. An owner who pledges both vans for a four-month gap may find them still listed on a lien when a better use for them comes up.
The business loans page sets the products side by side, with what each one can pay for.
By Ashmont Advances · Updated
