When you take out a loan, this is not only a risk for you, the financing party also has a risk of doing business with you. What if you ultimately do not have the option to repay the borrowed money within the agreed term? For this reason, collateral or warranty specifications are sometimes included in a contract. This is not the case with every party, so always pay attention to this before signing a contract .
What does collateral mean?
You can see collateral as certain security in the form of money, goods or rights. When someone borrows money from a financing party, the financing party can claim the money if the borrower does not meet the obligations. With collateral, certain assets serve as a guarantee for the financing party. This makes it more attractive for a financing party to do business with you, as there is a collateral in return if you fail to meet the obligations. As a result, a financing party can often lend more money, because it runs less risk. If you do not repay the loan, the lender will automatically become the owner of the collateral. This is set out in your contract.
When a request is made for collateral, this could be business premises, for example. Don't have this? Then it is also possible, for example, to use your owner-occupied home as collateral. In any case: when you choose collateral, it is important to think carefully about any risks. If you are not able to meet your agreements and are therefore in arrears, it may be possible that you lose your house. So be aware of this.
Find a financing party without collateral?
There are also various financing parties that are willing to provide a business loan without being asked for collateral specifications. However, you may have to pay a higher interest rate with such a party. This is because it is therefore a greater risk for the provider to provide you with a loan. So make decisions about what works best for you.
When you find a provider that asks for collateral, it is important that you always carefully check the drawn up contract. This is important anyway when you take out a loan, but with collateral it is even more important. If you are not able to keep your agreements, this can have very unpleasant consequences. So always consider in advance whether it is wise to take out a business loan, so that you have as much certainty as possible that you can actually fulfill your agreements. Are you not sure what to do best? Then we certainly recommend that you contact an independent advisor. This advisor looks at your financial situation and advises you on what to do best.