Risk Elimination Strategies for Lenders of Unsecured Business Loans

Most of the time when you hear the words ‘unsecured business loan’ you believe that these loans do not require any sort of collateral and that you can avail them without putting any of your valuable assets on the line. Well, the part where no collateral is required is true but this doesn’t mean that you as the borrower are off the hook when it comes to what you are liable for in case of a loan default.

There are certain avenues that lenders take in order to protect their investment and to guard themselves from any sort of risk in case the borrower’s business is not able to repay the debt. These are known as risk elimination strategies that lenders use when they extend unsecured business loans. Some of these strategies are mentioned as follows.

Personal Guarantee

This is when the lender, in order to protect his or her investment, asks you being the borrower to sign an agreement that puts your personal assets on the line, thus making you the co-signer of the loan. In case the business fails you are responsible to pay for the loan where the lenders can claim this from you in the form of your personal assets.

Unlimited Personal Guarantee

By signing such a guarantee the lender basically gets an agreement from the borrower that they are agreeing for them to recover 100 percent of the loan amount plus any legal fees. This allows the lender to go after any and all of your personal assets in case you default on the loan. Whatever it takes to cover the full cost of the loan, plus interest and legal fees will be for the lender to seize as repayment for the loan.    

Limited Personal Guarantee

A limited personal guarantee limits the lender in the case of a loan default and sets certain parameters on what can be collected and what not. Mostly this limited guarantee is agreed upon a set dollar amount. It is often signed by those businesses that have multiple business owners who together have applied for the loan. This way each business partner’s portion is defined as to what they need to pay in case the company/ business default on a business loan.

Blanket Business Lien

Just like a personal guarantee puts your personal assets at risk of getting seized by the lender in case of a default on the loan, a blanket business lien allows the lender to seize the assets of the business in the event of a loan default.

It is actually a legal claim included in fine print that protects lenders for unpaid debts through which they can collect the money that the borrowers owe to them.