SECURED BUSINESS LOAN

[StevenHWicker]

The sum of amount that a business will need as a business loan will generally be large. Unless, it is a bank that has higher confidence on the borrowing party, most banks and financial institutions will hesitate at the idea of lending a large amount to businesses without any guarantee. This explains the commencement of Unsecured Business Loans. A secured business loan is one where the borrowing businesses pledges loan repayment by offering the loan provider a lien of certain assets.

Would you, as a borrower of business loan, without any reason increase the cost of finance to your business, knowing well that the assets are being pledged? The assets pledged in secured business loans are available for use by the business owner or asset owner. It is only when the loan is not paid in full that the loan provider undertakes to repossess the asset forming assurance. Is it that the creditors of unsecured loan do not want repayment if the loan taker doesn't pay. In this case, the loan provider has to ask for repayment. Since they do not have a direct stake on any asset of the borrowing business owners, they will take support from the courts in the recovery procedure. Often the borrower has to cough up the amount. Additionally, the borrower's credit history is oxidizing because of these proceedings.

Certain loan providers would insist on the borrowing business owners to fulfil some preconditions in order to approve the loan proceedings. Certain conditions form standing orders that are applicable for the whole term of the secured business loans. For instance, loan provider will specify that the debt- equity ratio (the ratio of debt to equity in the capital) be kept to a certain level. Such conditions amount to reduction in business owner’s control over his business. Lender may demand prompt settlement of the secured business loan if at any time the condition is not met as briefed. The borrowing business owner must discuss well with financial experts about the implications of such points, before considering to loan deals.

Proper planning must be done before taking any decision to draw a secured business loan. The business not only has an asset on uprights, it is also the reputation of the business owner that is faded when the business does not pay in full. Since a business is always in need of financial support, it cannot afford to lose on reputation. This will make things difficult when the business is again in need of loans. They will have to do with business loans on hard terms because of the bad credit history. Businesses must thus decide the need of secured business loan beforehand.