What Types of Collateral are Typically Required to Secure Commercial and Industrial Loans?

To secure commercial and industrial (C&I) loans, lenders typically require collateral that consists of a company’s business assets. The specific type of collateral provided significantly influences the loan’s advance rate and credit appetite.

Common types of collateral required for C&I loans include:

• Accounts Receivable: These are invoices from creditworthy customers. They are highly preferred by lenders due to their liquidity and typically see the highest advance rates, ranging from 70% to 90%.
• Inventory: This includes raw materials, work-in-progress (WIP), and finished goods. Lenders generally advance 30% to 60% against inventory, as the value depends on factors like shelf-life and obsolescence risk.
• Equipment and Machinery: Fixed assets such as machinery, vehicles, or IT infrastructure can secure a loan at 50% to 80% of their appraised value, provided they are well-maintained and have a clear secondary market.
• Real Estate: While commercial or industrial property can serve as strong collateral with advance rates of 60% to 75%, it is more commonly used for specific commercial real estate (CRE) loan products rather than traditional C&I lines.

In some cases, lenders may also require personal guarantees from business owners, which must be clearly disclosed upfront per regulatory standards.