Secured Business Loan - providing a conducive atmosphere for
business growth
The amounts that a business will need as a business loan will
generally be large. Unless, it is a bank that has utmost
confidence on the borrowing enterprise, most banks and financial
institutions will balk at the idea of lending a large sum to
enterprises without any guarantee. This explains the genesis of
secured business loans. A secured business loan is one where the
borrowing enterprise pledges loan repayment by offering loan
provider a lien of certain asset/ assets.
Borrowers do get business loans without having to pledge any
such lien to the loan provider. These are known as unsecured
business loan. However, such opportunities are not easily
available. And if they are, the terms on which they come are
very expensive. The APR that borrowers of the latter category
will have to shell is many percentage points more than the Secured
business loans borrower.
Would you, as a borrower of business loan, unnecessarily
increase the cost of finance to your business, knowing well that
the assets are being pledged and not sold out? The assets
pledged in secured business loans are available for use by the
borrower. It is only when the loan is not paid in full that the
loan provider undertakes to repossess the asset forming
collateral. Is it that the creditors of unsecured loan do not
demand repayment if the borrower doesn't pay. In this case, the
loan provider has to demand repayment. Since they do not have a
direct stake on any asset of the borrowing enterprise, they will
seek support from the courts in the recovery process. Often the
borrower has to cough up the amount. Additionally, the
borrower's credit history is tarnished because of these
proceedings.
Secured business loans, thus is the safest bet for both the
borrowing entrepreneur and the loan providers. Loans in this
category will depend more on the value of collateral and the
lending organisation chosen. Maximum amount can be had through a
secured business loan.
Since the secured business loan has been used specially for use
in business, one is able to better mould the business loan. One
can use the business loan in a variety of purposes. Ranging from
the daily requirements in the form of working capital, the
business loan can also be used for expansion purposes.
Certain loan providers would insist on the borrowing
organisation to fulfil certain preconditions in order to approve
the loan application. Certain preconditions form standing orders
that are applicable for the entire term of the secured business
loans. For instance, loan provider will stipulate that the debt-
equity ratio (the ratio of debt to equity in the capital) be
kept to a particular level. Such preconditions amount to
reduction in entrepreneur's control over his business. Lender
may demand immediate settlement of the secured business loan if
at anytime the condition is not met. The borrowing enterprise
must discuss well with experts about the implications of such
clauses, before consenting to loan deals.
As against individuals who would have to repay the loan through
fixed monthly or quarterly instalment, entrepreneurs get to
repay the loan through repayments that are flexible.
Entrepreneurs, owing to their fluctuating income structure, get
to pay through instalments that are not fixed. In periods when
the business is going strong, the entrepreneur will pay a major
part of the loan. This will be used as a pretext to smaller
payments or payment holidays, as the case may be.
Online processing of loans has caught up with secured business
loans as it has with the personal loans. An entrepreneur
planning to draw a secured business loan shall simply fill up
the loan details and initiate the process of approval. The web
technology is used by a few borrowers to compare between a
number of loan deals available. The loan providers short-listed
are requested to send a loan quote defining the terms of the
secured business loan. This is a very important and effective
technique of drawing information about the pros and cons of
loans.
Proper planning must precede any decision to draw a secured
business loan. The business not only has an asset on stake, it
is also the reputation of the enterprise that is tarnished when
the business does not pay in full. Since a business is always in
need of finance, it cannot afford to lose on reputation. This
will make things difficult when the enterprise is again in need
of loans. They will have to do with business loans on stricter
terms because of the bad credit history. Businesses must thus
decide the use or need of secured business loan beforehand.
Andrew baker has done his masters in finance from CPIT.He is
engaged in providing free,professional,and independent advice to
the residents of the UK.He works for the Secured loan web site
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