Loans Against Personal Assets: Risky Business Funding Solutions

2015-03-06

Jeffrey Bumbales

Would you risk everything to get approval on your small business loan? Some lenders would like you to say yes to that question, but there is a point where excessive risk can seriously threaten your personal finances.

It can be true that business success and risk go hand-in-hand. You might have given up working a steady job for someone else to go out on your own. Your dream involves taking certain risks. But if your small business funding solution requires you to put up personal assets as collateral, you need to understand that your level of risk just skyrocketed.

 

Risky Business: Loans Against Personal Assets

Banks offer a traditional path in small business loans that typically requires collateral. According to about.com, prior to the 2008 recession, small businesses could successfully approached their bank for a business loan and could easily meet the loan criteria. Collateral was not as important as it is today. The economic landscape has changed and banks have tightened their lending guidelines in a way that excludes many small businesses. More important than ever is what you have to offer in collateral. But this is a buyer beware lending requirement.

According to foxbusiness.com, financial experts don’t recommend putting up important personal assets in order to secure a small business loan. It is considered by most a last resort option, with the ideal form of collateral being something connected to the actual business. In other words, offer up your storefront, inventory, or your delivery vehicle as collateral, but keep your personal property out of the equation.

 

Why a loan against your personal assets is risky:
  • Banks like large assets: Any high-valued property, like your home, makes it easy for the bank to get their money back if you cannot make your payments. The top item they seek as collateral is a house or any real property, but it is one of the most risky things you can offer up to secure your business loan. If your business does not succeed, you can lose the roof over your family’s head and all the security you worked so hard to achieve.
  • Personal property can be taken: Collateral offered on a loan can include boats or cars that you own outright. You may not think twice about offering them as collateral, at least until the business hits a slump in sales and you can’t make your loan payments. Imagine losing your business and your car. The impact and risk on your personal finances is still high when you risk these assets.
  • Your personal credit score is on the line: If you lose your home to a failed business loan, expect that this will impact your personal credit history for many years to come. Any time you mix personal assets with your business you multiply your long-term financial risks tremendously. Experts recommend keeping your personal finances separate from your business venture.

According to Inc.com, it is recommended that you discuss with a financial advisor any possible impact and risks involved in offering up your personal assets to secure a small business loan. Other, less risky options through an alternative lender, which does not require credit checks or collateral, may be the ideal funding solution.

 

Conclusion

There are alternative small business funding solutions that do not require you to put up your personal assets as collateral. Every business has working capital needs – contact Credibly to see how we can help you!