Quick answer: Collateral is property a lender can claim if a loan isn’t repaid. A personal guarantee is your personal promise to repay the business debt if the business can’t. Many small business loans include a personal guarantee and a general lien on business assets (a UCC filing) even when no specific collateral is pledged. Read these terms carefully before you sign.
Types of collateral
| Type | What it means | Common with |
|---|---|---|
| Specific collateral | A named asset, like a truck, machine or building | Equipment financing, real estate loans |
| Blanket lien (UCC-1) | A claim on business assets in general, filed publicly with the state | Many term loans and lines of credit |
| Real estate | A mortgage on business or personal property | Bank and SBA loans |
| No specific collateral | Approval based mainly on revenue and cash flow | Many non-bank business loans (often still with a personal guarantee) |
What a personal guarantee means
If you sign a personal guarantee, you agree to repay the business debt personally if the business defaults. An unlimited guarantee covers the full debt plus costs; a limited guarantee caps your exposure. Most small business lenders, including SBA lenders, require a personal guarantee from owners with significant ownership.
What is a UCC filing?
A UCC-1 financing statement is a public notice that a lender has a claim on certain business assets. It’s standard on many business loans. It can affect your ability to get other financing until it’s released, so ask the lender to file a termination once the loan is paid off.
Questions to ask before you sign
- Is there specific collateral, a blanket lien, or both?
- Is the personal guarantee limited or unlimited?
- Who else must sign (partners, spouses)?
- What counts as a default, and is there a cure period?
- Will the UCC lien be released when the loan is paid?
- Does the loan restrict taking on other financing?
Brookestone Funding business loans
Our business loans are approved primarily on your revenue and cash flow. Every offer lists the terms, total repayment and any required disclosures before you sign, so you know exactly what you’re agreeing to.
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- Same-Day Business Loans: How They Work and How to Get Funded Today
- Business Term Loan vs. Line of Credit: Which Is Better for Your Business?
Frequently Asked Questions
Do all business loans require collateral?
No. Many non-bank business loans are approved on revenue and cash flow without specific collateral, though they often include a personal guarantee and a general UCC lien.
What happens if I default on a personally guaranteed loan?
The lender can pursue repayment from you personally, up to the guarantee amount.
What is a UCC lien on a business loan?
A public filing showing a lender has a claim on some or all business assets until the loan is repaid.
How do I remove a UCC filing after paying off a loan?
Ask the lender to file a UCC-3 termination statement with the state once the loan is paid in full.
Need financing? Brookestone Funding offers business term loans, lines of credit and SBA loans from $10,000 to $2,000,000, with same-day funding available for qualified businesses. We’re rated 4.5 on Trustpilot by more than 240 customers. Apply in minutes, see our business loan options, or call 212-258-0602.
