Borrow

The need to borrow often arises when working toward business and personal goals. The reasons are innumerous; personally, an unexpected emergency, medical bills, a child going to college, or a desire to make home improvements can provide a need to borrow money. In business, the decision for an expansion, hiring a new employee, or purchasing new equipment can give rise to a need for a business loan. Whatever the reason, it’s important to know what your options are when the need to borrow does arise. With so many loan programs available, understanding the benefits of each one is crucial.

A heated debate when borrowing is always concerned with secured versus unsecured loan products. The former requires security on the loan. This is also known as collateral. Essentially, this means assigning a product of value—usually a large asset, such as a home or a car—as security on a loan. This allows a company to place a lien on the item in the event the loan is unpaid. Although this makes it much easier to borrow and can yield lower rates, it also imposes a risk to the borrower, especially for business ventures. Additionally, it can impose other restrictions on the item that is serving as collateral. For example, if a car is being used as security, it cannot be sold until the loan is paid in full.

When you borrow money with unsecured loans, by contrast, do not have any item of value to back the loan. This type of loan simply utilizes good credit as its security. Many companies are hesitant about offering such loans because it potentially poses a higher risk to the company. However the ease this presents to the borrower—one can avoid having to take risks, undergo appraisals, and cut through a lot of time and paperwork—has made this a very popular product in today’s market.

It is important to oversee one’s financial needs when identifying which kind of product to select. Often, a loan representative can help establish these. The impact a loan can have on one’s financial life cannot be exaggerated—so make sure you understand what different products mean and ask your loan officer about any questions.