It is a tough time for small businesses at the moment, especially for those struggling to find money. The banks are in turmoil and are less keen to lend and customers have less disposable income which, in turn, has resulted in less revenue for many businesses.
Secured Loans have been an option that many small businesses have turned to but these do come with risks; usually the person taking the loan will use their possessions as collateral. Despite this, secured loans, or homeowner loans, can provide an instant cash injection and, as long as the repayments are met should have no adverse consequences.
If you are thinking about funding your small business this way, you need to consider some issues.
With a secured loan it is likely that a home will be the collateral on which the loan is based and, just like estate agents, different loan companies will have different ideas about your homes worth. If you have a figure in mind you want to borrow but one loan company does not feel your property adequately covers this amount you should shop around; the chances are there will be a company who agrees with your estimations.
The golden rule of taking a loan is to never borrow more than you can pay back. A good piece of advice is to imagine, that rather than borrowing from a lender, you are borrowing from your future self. If you are certain that you could eventually be able to afford whatever it is you are borrowing, then you should be safe to borrow that amount.
While it may be tempting to take as much as you can from a loan company it is not advisable to take any more than you need, or can afford, to repay. That said, homeowner loans are significantly more affordable than short term or payday loans resource which have incredibly high levels of interest (often over 2,500%APR). Often starting at around 9%APR, secured loans only have slightly higher interest rates than a bank.
Defaulting on a homeowner loan will almost certainly result in the loss of your home but, should the company feel they cannot cover the cost of your loan with your property they can apply for a deficiency judgment meaning you could owe more money on top of the loss of your property. Failure to meet these payments can result in bankruptcy. Now, while this may sound all doom and gloom, these consequences will only happen if you do not pay back the loan; you should, however, be prepared for these consequences and have a full understanding of the circumstances that could trigger them.
About the Author: Kevin Ball is writing on behalf of Norton Finance; providers of secured loans, debt consolidation loans, remortgages, homeowner loans and other lending services.
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