Secured Loans with Star Finance
What Are Secured Loans?
In a secured loan, the lender has a legal claim against a borrower’s assets. If the borrower defaults, the lender can convert the assets to cash to be repaid.
The assets in a secured loan are referred to as collateral. Different types of loans are typically secured by different types of assets.
- Lines of credit are secured by accounts receivable and inventory.
- Demand loans are secured by vehicles and equipment.
- Term loans are secured by real estate.
For smaller business loans, entrepreneurs may pledge personal assets (things they own as individuals) rather than business assets.
Understanding Secured Loans
Sometimes, the lender will have claim to a wide range of assets (called blanket charges), while other times a secured loan will claim specific assets (part of an inventory or a particular piece of equipment).
In every case, the assets are secured in addition to any promissory notes and loan agreements that may exist between the lender and borrower, and are usually registered (or “on title”) with a security registration agency. Because they are registered formally, they show up in a company’s credit history.
Interest rates on secured loans are generally more favourable than those on unsecured loans because there is greater assurance that the lender will be repaid.
*Please note a General Securities Agreement is required on all Secured Loans with Star Finance & Loan Inc.
More Info About Secured Loans
Within a secured loan, several types of security can be arranged:
General security agreement — provides claims on all assets of the company (except land and buildings)
Collateral mortgage — giving lenders claim to land and buildings
Personal guarantee — providing lenders access to an entrepreneur’s personal assets
Debenture — fixed and floating charges on all assets of the company, including land and buildings
In other cases, insurance—on either the assets of the company or the lives of the central owners or managers—may be made payable to lenders as part of a secured loan.
Business Loans
Business loans can also be secured, though unsecured ones can be had. An equipment loan, for instance, is a type of secured business loan. Say you own a construction business and need to purchase a new dump truck. You could use an equipment loan, secured by the dump truck you plan to purchase, to pay for it. As long as you pay the loan on time, you wouldn’t be at risk of losing the equipment you purchased.
One thing to note about secured business loans is that you will also be required to sign a General Securities Agreement. This means that you agree to be personally liable for any debts taken out by your business if the business defaults on the loan. So if your business runs into cash flow issues, for example, you could be personally sued for a defaulted loan.
