I’ve talked about advantages of using an equipment financing company over the bank whenever you need to finance or lease equipment. There are a myriad of reasons, of course, but one of the biggest is the blanket lien that often comes with a bank loan.
It’s also fairly misunderstood or ignored. That’s probably because of the word “lien” itself. Because when people hear that word, right away they imagine “boring fine print and cryptic financial formulas that I have no interest in”.
So the blanket lien gets lumped in with the “if I just pay the loan, I’ll be fine” mindset. But it’s really not that simple. The blanket lien can and may affect you even if you make all of your payments on time. Here’s how:
Let’s say you need a new piece of equipment (for argument’s sake, let’s call it a Digital Super Widget that any business would love to have). You go to the bank for an equipment financing loan. They happily give you a three-year lease, and buried in the fine print is a blanket lien. You pay it no mind, because the fine print only comes into play if you don’t make payments, right? You don’t see that happening, so it’s all good.
A year later, you want to trade in your delivery truck for a new one. You’re all ready to sign the deal when the dealership finance person comes to you and says “we have a problem – there’s a lien on your truck, and you can’t trade it in without the bank’s permission”.
You think “Lien…. But I own the truck free and clear!”
But no, you really don’t. Not anymore. The bank has first dibs on that truck (and everything else in your company), because of the blanket lien buried in the fine print of last year’s Digital Super Widget loan.
And that, my friends, is exactly why a blanket lien should be avoided.
I’ll continue this in my next post when I talk about the blanket lien lineup.