There are a number of disadvantages to taking out commercial
loans:
Additional guarantees. Depending on the credit
rating of your company, the lender might require additional
guarantees. These may be provided by you, your partners
or your bank and could affect your personal credit rating
or your standing with your bank.
Collateral. The lender may insist on a pledge
of some asset to secure the loan. Under a security agreement
(for personal property), if you default on the loan, the
lender is able to foreclose upon the asset and sell it to
repay the money owed to the lender. If you are required
to provide security, try to limit the amount you have to
give to secure the loan. And make sure that when the loan
is repaid, the lender is obligated to release its mortgage
or security interest and is required to make any government
filings acknowledging this release.
Defaults. The lender may define a variety of events
that will constitute a default on the loan, including failure
to make any payment on time, bankruptcy, insolvency and
breaches of any obligations in the loan documents. Try to
negotiate advance written notice of any alleged default,
with a reasonable amount of time to cure the default.
