I’ve mentioned restrictions quite a bit in this blog. In fact, a post from earlier this year about control over your equipment and assets really drives the point home.
All too often, companies enter into financing and leasing agreements with all kinds of draconian covenants and restrictions in the fine print. These restrictions (like blanket liens, minimum bank balances that must be kept, and requalifying for the loan annually) can severely limit a company’s operations, and yes, cedes control over assets to the lender.
Here’s the thing with these restrictions: they are there to protect the lender, and allows them to offer a lower rate than a lender that doesn’t have restrictions. For example, a blanket lien ensures that if a borrower defaults, the lender can come in and “sell it all” to recoup their money.
So today, in late 2022, when rates are rising, it’s likely that many borrowers are going to look a little harder at the rate. But I PROMISE you this: the lowest rates you find will also include these restrictions. So please be aware of that.
Your credit score won’t matter, and your relationship with the lender won’t matter. It’s lending algorithms – the lower the rate, the higher the restrictions. It’s the way the lending industry works.
To give an example, my company, Crest Capital, does not include these types of restrictions. And we can do this for two reasons: we only lend to good credit companies in stable industries, and our rate, while near the bottom, is not THE bottom. And while we’re not for everyone, our customers find our rates and terms very favorable to how they want to operate.
The bank will have a lower rate, and they’ll want control over your assets in return. Is that a good trade-off? That’s not for me to answer. But in this environment of rates going up, I do feel the need to post this and make companies aware of the relationship between rates and restrictions – the lowest rate will always have the highest restrictions.