Here’s the uncomfortable truth about unsecured business loans: they aren’t entirely unsecured.
Pretty much any lender that offers unsecured loans will still require either a personal guarantee or a UCC lien.
A personal guarantee is basically your commitment that a lender can go after your personal assets if you fail to repay your loan. So your house, your car, the money in your personal bank account―all of it can potentially get taken by your lender. (Potentially is the key word, though. We’ll come back to that in just a second.)
A UCC lien (or Uniform Commercial Code lien) serves as a blanket lien on your business assets. As with other types of liens, it means your lender has a legal right to the specific property if you default on your loan.
But―and this is a very important but―your lender cannot take either your personal assets or your business assets willy-nilly. Whether you agree to a personal guarantee, a UCC lien, or both, your lender can’t go after your assets unless you fail to repay your loan. And even then, they’ll have to go through specific legal channels to enforce their right to your property.
That’s why we’d encourage you not to worry too much about a personal guarantee or UCC lien. You might think they’re a major downside to unsecured loans, but they’re the only reason lenders offer unsecured loans in the first place. Without a personal guarantee or UCC lien, you probably just wouldn’t get approved for a loan at all.
So don’t panic. Go ahead and get an unsecured loan if you want one.