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When your business needs some capital, a small business loan can be an excellent source of funding. If you have no collateral to offer or do not want to tie the loan to any collateral, lenders will look for other guarantees of repayment. There two possible choices: a personal guarantee or a business lien. A personal guarantee is usually the choice when there is only business owner or the company is new and un-established. Business liens can come in a variety of forms and are generally tied to the company’s assets. Before signing on the dotted line, here are a few important things you need to know about liens on business loans:

  • A lien is the legal claim a lender has to your business’ assets because of loan debt you’ve incurred. If your business fails to meets its loan obligations, the lien allows the lender to sell your business assets in order to make up the losses.
  • If you have more than one unsecured business loan, the first loan and lender will hold the first lien position. This means if you default, they have first chance at your assets. Once they have recouped their money, the lender in the second lien position gets a shot at selling off your assets if there is anything left. Because second or third is a much riskier situation for lenders, they will charge more in interest rates or fees to hedge their bets on the loan. This is important to realize when applying for a secondary business loan.
  • With no-collateral loans, lenders will often file a blanket lien – a basically unlimited lease on your assets if you are unable to repay your debts. This can be dangerous for obvious reasons – you are left completely financially exposed if you default. Instead of having one piece of property or equipment at risk for being seized, every possible asset falls within that danger zone. Another pit fall of taking on blanket liens is that it can be very difficult to secure any other financing while that business loan is still being paid off. Very few lenders will want to take on the risk of being in a secondary position to a blanket lien.

While a no-collateral loan may sometimes be the best business loan option for your company, be sure to fully research the lien implications and understand what specific assets your business stands to lose in a worst-case scenario.


Search for Small Business Loan Sources and receive your matched lender list
AND received FOUR free Business eBooks worth $39.95!
Search for Small Business Loan Sources