As you may have already discovered, one of the most misleading terms on the business lending landscape is “secured business loans.”
Why? Because as a prospective borrower, you may rationally and logically believe that applying for secured business loans is safer vs. applying for an unsecured business loans. After all, the word “secured” is associated with safety, correct? Well, yes and no.
Yes, it’s true that secured business loans are indeed safer. But not for you: for the lender! They are actually less safe for you, because in order to obtain the loan in the first place, you must pledge collateral that can include a mix of personal and business assets. If you default on your loan payments, the lender can take immediate ownership of some or all of your assets, and liquidate (i.e. sell) them to cover the debt.
As you might expect, there are some common problems and obstacles that prospective borrowers face when applying for these types of loans, including:
Not having enough collateral.
Many borrowers simply don’t have enough collateral to obtain a secured business loan. What’s more, some lenders — and especially banks — are notorious for under-valuing collateral, because it further reduces their risk exposure.
For example, a piece of high-end industrial equipment that 10 out of 10 marketplace experts would say is worth $60,000 might be valued by a lender at $40,000. If the unsecured business loan requires $60,000 worth of collateral, the borrower will need to pledge another $20,000. Is this unfair? Yes. Does it happen all the time? Unfortunately, that’s another yes.
The process is excessively time consuming.
Many lenders who insist on collateral refuse to expedite the valuation process, frankly because it’s not in their interest to do so (again, banks spring to mind here). Unfortunately, this means that the loan application process can take several months, which for many borrowers is simply not feasible. They need funds within days to cover unexpected expenses, or take advantage of limited-time opportunities.
High and non-refundable up-front costs.
Many borrowers who pledge personal and/or business assets for secured business loans are unpleasantly surprised to discover that they — and not the lender — must pay for the collateral valuation. This amount can be hundreds or thousands of dollars, must be paid up-front, and there’s no guarantee that the valuation will be sufficient to cover the loan. If not, then prospective borrowers do not get their up-front fees back.
How to Solve these Common Challenges
The simplest and easiest way to solve these challenges is to avoid them in the first place — which means focusing on unsecured business loans instead of secured business loans. There is no collateral valuation fee or time-consuming valuation process. What’s more, while you do indeed need to promise to repay the unsecured business loan, your personal and/or business assets aren’t at risk of immediate loss in the event of a default. That means time and options are on your side, which can make all the difference between getting back on-track vs. heading into a downward financial spiral.
To learn more, contact the National Business Capital team today. Without any confusing jargon, we’ll clearly explain how our different unsecured business loans work, answer questions that are specific to your business and objectives, and empower you to make a smart and safe choice.
If that means you ultimately partner with us, we’d be honored to be a part of your success story. Or, if you decide to head in another direction, it will still be our pleasure to help you boost your business loan IQ, and make a decision that is in YOUR best interest — not your lender’s! Start by filling out our two-minute application and we’ll help you find a loan option that’s right for your business.
For more information on how to get business funding when banks say no, download our FREE eBook today!