Biz Tips: Collateral You Can Leverage for Working Capital

businessman in cape by business growth curve

If you’re a small business in need of working capital, you have many financing options available to you. Often, the challenge is determining which type of financing will best fit your business’ particular needs. The type you choose is often determined by the assets your business has available to leverage. Asset-backed loans (ABLs), term loans and lines of credit, are some of the financing options your business can use to get quick access to the capital you need to fuel growth. But which business assets can/should you leverage for financing? We’ve put together a list of eight types of collateral you can leverage for working capital. 

Accounts Receivable (AR)

Asset-backed lines secured with accounts receivable are among the most common types of business financing. Businesses that extend payment terms such as net 30 days often experience cash flow challenges due to slow paying invoices are good candidates to seek this type of financing. In this case, a lender will advance you up to 80% of the invoice value which you can use to fund operations.


Inventory financing is a great option for retailers—or any business that stocks inventory for sale— who face cash flow challenges. Retailers often run into cash shortages as a result of  seasonality and consumer product companies often have warehouses full of goods they are ready to ship in the coming months, but lack capital to continue their production cycles. Inventory lenders can provide a revolving line of credit that is based on a certain percentage of your cost of inventory or a percentage of the Net Orderly Liquidation Value.

Monthly Recurring Revenue (MRR)

Loans based on monthly recurring revenue (MRR) have become increasingly common due to the rise in Software-as-a-Service (SaaS) companies operating with a subscription revenue model. This type of loan is geared toward SaaS companies who need to fund the cost of customer acquisition, but do not want to dilute equity in the early stages of their business. Companies that fall into this category can submit their subscription details to a lender who will usually fund 2x-3x the value.


If your business needs to purchase expensive equipment to continue growth, you may want to consider looking for equipment financing as opposed to paying out of pocket and impacting your cash flow. Much like renting a car, the equipment itself will serve as collateral for your loan and you will make monthly payments with a fixed interest rate. This financing option prevents businesses from having to pay large up-front sums and allows them to keep working capital available for other costs associated with growing a business.

Personal Asset

Often, an entrepreneur seeking a loan may have some personal assets they could foreseeably leverage as collateral. In this case, there are certain lenders that will consider luxury assets such as cars, family heirlooms, gold, etc as collateral for a loan. Keep in mind that these lenders often take possession of your assets until the loan is fully repaid. Some lenders will provide much as 90% of the value of your asset within 24 hours without conducting a credit check which makes them an attractive option if your business is in a crunch.


While certainly a less common asset type, some businesses may have the option to pledge a patent as collateral for a loan. However, this can be a difficult avenue as in many cases the value of a patent to a company significantly outweighs its market value. If your business is considering using a patent as collateral, you will first need to go through a valuation process. If at that point you decide to move forward with your loan, you can either sign a securities agreement detailing what happens in the event of default or you can choose to assign the patent to your lender who will then give your company rights to create products under the patent. Read more about patent loans here.

Real Estate

If your company owns a commercial building and occupies more than 50% of the space, you can apply for a commercial real estate loan with a bank or private lender. The loan to value (LTV) will range from 65% to 80% depending on the type of property. These loans are usually made to the business entity itself secured by a lien on the property.

Purchase Orders

Purchase order financing is best for manufacturers who need money on the front end of the production cycle in order to buy the raw materials and/or pay manufacturers to create their product. This type of financing usually entails having your finance partner issue a letter of credit to your manufacturer for the cost of goods/services needed to create your product. Once the product is made and shipped to your client, your client will remit payment directly to your PO financier who will then remit the remainder back to you. This type of financing helps manufacturers who can’t front the cash to fill large purchase order but don’t want to lose revenue due to lack of capital.

Thanks for reading! We hope you found this post informative and have some next steps in mind as you continue searching for a loan to best suit your business’ particular needs. While P2Bi provides lines of credit to companies based on AR, MRR, and inventory, we have many friends in the finance world and would be happy to point you in the direction of some folks who could answer questions about your loan options. Feel free to drop us a line or leave a comment below.

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