If you’re a business owner that’s unfamiliar with business lending it pays to make sure you understand all the terms for any loan you might be considering.
A business owner was explaining to me how he had been in discussions with a major bank about the government initiated SME loans. Whilst he had been talking to the bank since October it was clear he had misconceptions on how lenders were determining eligibility. He also believed he could walk away from the loan without impact to himself or business if he couldn’t repay the loan. At one point he started reading from a Treasury webpage – in doing so it was clear he was interpreting the term ‘unsecured’ more like ‘no recourse.’
Non recourse loans are rare, unsecured loans are offered by a number of lenders. Unsecured loans usually require a director’s guarantee with a charge taken over the business. In the instance that a business falls behind in their payments to some of these lenders, directors could find caveats lodged over their properties irrespective of the fact that the loan hasn’t been secured with a mortgage.
Whatever a lender’s policy you should always assume there will be consequences to not repaying your loan.
The Commonwealth Treasury has approved the first participating lenders in Phase 2 of the Government’s SME Guarantee Scheme. Key information on Phase 2 of Government