3 Terms You Should Know- Small Business Loan

The procedure of taking out a loan can be a daunting one, especially for small or startup business owners who might not have enough experience when it comes to the matter of this type of financial transaction. Just like you don’t want to try and open up a new credit card without understanding the different terms, it is unwise to take out a loan without a strong research data , what the various words and phrases lenders use. The better you make some knowledge , the easier the process of applying for a small business loan will be.

Origination fee

You should understand that an origination fee is a processing cost. It is a charge taking by a lender to cover the expenses of processing your loan application. Some small business loan asks charge a flat rate origination fee to all debtors while other lending companies will give debtors a rate based on their qualification or approved APR. You can expect to pay an origination fee between 1% and 5% on the total amount you are receiving as loan amount. A debtor should understand that the origination fee in when requesting a loan because otherwise you might find yourself coming up short when it is time to use the amount.

Personal guarantee

Almost all lenders will require a personal guarantee, which is an agreement that makes the signer personally responsible for the debt amount. It means if your loan were to default, not only would the lender follow after your trade assets, but it would also able to follow your personal assets to cover the debt. Personal guarantees are often used for business that is making the first footprint or not well known. A personal guarantee from a borrower side helps to protect lender’s money. When the matter comes to taking out a loan for a small business,  it is worth considering the potential impact on your personal finances if a personal guarantee is needed. So you should keep in mind that you need to be fully aware of a business full financial situation before signing any type of personal guarantee.

UCC lien

Lenders that need collateral for a small business loan often need borrowers to sign a UCC lien, also known UCC-1 financing statement. A lien is an important document that lays claim on actual assets owned by a borrower, inventory, equipment as well as property for business and it is used in the event that they can not pay back a loan to recoup some or full of the costs. UCC laws are little based on the different state to state, so be sure to read up yours.

Once you have signature a UCC lien against your business property, You can not sell them without having paid the full loan amount. This is one type of guarantee that you will honor your debt. One thing you need to remember that fortunately, UCC lien only covers business property, it does not apply to any personal property. So if you sign a personal UCC lien, the personal guarantee does put your non-business property at risk if your trade should go under before your loan is paid off.

Before applying for a business loan you should remember the above-mentioned points. Do a proper research work and understand the exact processing methods because it will help you to avoid unnecessary troubles as well as secure your business and personal property.