Reason #3 an equipment financing company is better than the bank – we don’t want your first born (or your kid’s college fund) as collateral.

By | March 28, 2012

no blanket lien requiredLet’s keep going with our ten reasons an equipment financing company is better than a bank with reason #3, which is cross-collateral (or as we like to say, your first born.)

Ok, let me be honest – the bank probably doesn’t want your first born (especially if he or she is still in the diaper stage – yuck). But, the bank WILL look into cross collateral for your loan. And if you are a small business, that might mean your personal accounts.

That’s right – if you secure an equipment financing loan or an equipment lease through the bank, they will very likely put in a clause that blanket liens all of your assets “now… and hereafter acquired”. This includes personal assets, so your house, your boat, your kid’s college fund – all of those can be technically tied up with your equipment loan. So when it comes time for junior to go to college, he (and you) could be in for a big surprise if the equipment loan you took is still outstanding.

This is called cross collateral, and it’s quite common with the bank. When you take out a loan, all of your personal business and assets can be tied up in the legalese. And since it’s in legalese (and also in 6pt font), you may not really be aware of this. But yea, they get tied up, preventing you from borrowing, selling, or otherwise using these assets without the bank’s specific permission. Now, will they keep junior out of college? Well, we hope the bank isn’t that evil, but then again, why take that risk?

Contrasting this, an equipment financing company (like mine) will file one UCC financing statement on the specific asset we are financing. If your kid’s college fund isn’t on there (and we’re really not interested in that anyway), you are free to do what you wish. In other words, we don’t care about your other assets, and will leave you (and junior) alone. He’s free to go to college and attend all the keg parties he wishes (not that ol’ Fletch would know anything about that, mind you – I studied all throughout college. Indeed I did.)

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