Lenders ask a Towson, MD law firm or clinic for collateral when the amount is larger, the term is longer or the business's record is shorter; they may lend without it, usually leaning on a personal guarantee and pricing for the added risk. Receivables and equipment are the assets most firms and clinics have to offer.
This article from Coveglen Loans in Towson, Maryland explains collateral on business loans, how law firms and clinics use receivables and equipment, the trade-offs of unsecured loans, personal guarantees and an invented side-by-side example.
What collateral means on a business loan
Collateral is property a lender has a right to take if the payments stop. It can be a specific item, such as an ultrasound unit financed with equipment financing, or a broad claim, called a blanket lien, on all of a business's assets. The lender records its claim, often with a UCC filing with the state, so other lenders can see it.
Collateral lowers the lender's loss if things go wrong, which is why secured loans can be offered at larger amounts or longer terms. It also limits what the business can pledge to the next lender.
Ask every lender whether it files a specific lien or a blanket lien, since a blanket lien can affect future borrowing.
Law firms and clinics: receivables and equipment as collateral
A law firm has few hard assets: furniture, computers and a case management system. Its main asset is fees owed by clients, its receivables. Some lenders secure a credit line with receivables; others are cautious about contingency fees that are not yet earned. A clinic has equipment and insurance receivables, both of which lenders recognize.
Legal services counted 622 employer establishments in Baltimore County, MD in 2023 and offices of physicians 600 (County Business Patterns). The records each one offers a lender differ: fee ledgers and engagement letters for a firm, payer reports for a clinic.
A clinic financing a new imaging unit can let that unit secure its own loan, keeping receivables available to secure a line.
For a firm that bills monthly, the receivables report is the collateral record. A clean report, with few balances past ninety days and clear notes on disputed fees, gives a lender a clearer basis for accepting receivables as security.
Unsecured options and their trade-offs
An unsecured loan names no specific asset. In exchange, lenders often ask for stronger credit, a longer operating record, or a personal guarantee, and they may price the loan higher or keep the amount smaller. Unsecured loans keep assets clear of liens, which matters to a firm that expects to borrow again for a larger purchase.
Even an unsecured loan may come with a blanket lien in the fine print. Read the security section of the agreement, not just its title.
Compare a secured and an unsecured offer on total dollar cost and on what each lets the business pledge later.
Short-term unsecured offers sometimes come with daily or weekly payments. Check the payment frequency against when fees and claims actually arrive, since an automatic debit that lands before a deposit clears can overdraw the account.
Signing personally: what owner liability means on a loan
With a personal guarantee, the owner's own assets stand behind the business debt. Lenders can ask for guarantees on small business loans, secured or not. For a firm with several partners, the lender may ask each partner to guarantee, sometimes for the full amount.
Read whether the guarantee is unlimited or capped, whether it covers only this loan or all debts to the lender, and how it ends. Questions about the guarantee's legal effect are for the owner's own attorney.
A spouse's signature may be requested in some cases; ask why before agreeing.
An invented Towson, MD office loan, secured and unsecured side by side
Illustration only, invented figures: a Towson, MD firm compares two invented offers for $60,000 over 48 months. A secured offer at an invented 9.2% costs about $1,499 a month and $11,943 in interest; an unsecured offer at an invented 13.8% costs about $1,634 a month and $18,412 in interest (our arithmetic).
The unsecured offer costs about $6,469 more in interest over the term (our arithmetic), in exchange for leaving the firm's assets unpledged. Whether that is worth it depends on what the firm plans to borrow next.
The answer can change as the firm grows. A practice that starts unsecured can later refinance into a secured loan at a different rate once it owns more equipment, or move the other way once its record is longer.
Questions to settle about collateral before signing
- Is the lien specific to one asset or a blanket lien?
- Is a personal guarantee required, and is it capped?
- Can collateral be released when part of the loan is repaid?
- What happens to the lien when the loan is paid off?
- Does the agreement limit other borrowing?
Settle these before signing, and compare offers with all six funding types, term loans and working capital loans. Call (443) 775-7995 to talk a collateral request through.
By Coveglen Loans · Updated
