Why Provide Security For A Business Loan?

If you are going to apply for a business loan then one of the considerations is whether you wish to borrow the funds on a secured or unsecured basis. Having said that, it is the lender that will decide if it requires one or more forms of security.

There are many lenders that will insist on some form of security being provided for certain businesses. For instance, if you have just set up a business then it is more likely that you will be required to provide security as a newly established business tends to present more of a risk of defaulting on the borrowing than one that has been trading profitably for many years.

The type of security required by a lender can vary. For instance, you may have to provide a personal guarantee supported by say a second mortgage over your residential property. You may be asked to provide a mortgage over the business premises or a mortgage debenture over fixed and/or floating assets.

In any event, you may prefer to offer some form of acceptable security to the lender as the interest rate charged by the lender is likely to be lower on a secured business loan than on an unsecured business loan. As a result, the monthly business loan repayments should be lower when supporting security is provided.

Do bear in mind that, if you are providing security, you will no doubt have to pay fees. These could be legal fees as a solicitor would be required to deal with the likes of sorting out a legal charge over the business premises or providing independent legal advice to the person providing the personal guarantee possibly supported by a second legal mortgage over the matrimonial home. These fees should be taken into account when deciding if it is financially viable to arrange a secured business loan rather than an unsecured one.

We do hope that you find the above of benefit. If you are thinking of applying for a business loan why not contact us and we will introduce you to a broker who has a great deal of expertise in arranging both unsecured and secured business loans.

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