There’s more to starting a business than just a good idea–you need equipment, a workforce, and working capital in order for the ball to really get rolling. If you are like most business owners, taking out a loan to pay for it all could be a necessary evil. However, it is vital that you take the time to understand the effect any liens could have on your business: the problems they might cause and what alternatives you may have.
A lien is essentially the way a lender stakes out a spot in the queue for repayment in case of you can’t pay on the loan. As these liens honored in the order they are filed, lenders want to be in the highly-desirable first lien position.
So, as you take out additional loans to pay for the costs of business, each lender you seek out gets in that line. The risks posed by being further back in line encourages lenders to demand higher interest rates on your business loan, even if only in the second or third slot! Make absolutely sure to go over your pre-existing loans and determine that the capital you need is coming at a price you can afford.
A short-term loan can pose another set of risks–chief among them the blanket lien. A blanket lien provides your lender with the right to seize other assets following default. If this kind of lien is at the head of the pack and you fail to pay the loan back, you will find it all the more difficult to pay off your remaining debt.
Fortunately, the process of determining the status of your company’s liens is far easier than in the past. Lenders are required to file a UCC-1 financing statement upon filing a lien that will be posted online. Simply visit your state’s Secretary of State website and follow the instructions–you can visit Minnesota’s secretary of state here.
Never forget to read the fine print–or, better still, hand it to your attorney for review before jotting down your signature. Too many business owners suffer unexpected losses when a clause hidden deep in the details leaps out to bite them. Take care not to be caught off guard.
Having a business attorney that understands the individual needs and unique circumstances of your company is key to helping your business thrive and prosper. If you are interested in learning more about legal protection strategies for your business and how we work with you as a partner in protecting your company, call us today at (612) 206-3701 or fill out our contact form to schedule a small business consultation session.
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