Dinn, Hochman & Potter, LLC

Understanding entrepreneurial law in relation to debt financing

Ohio businesses may find that establishing an unsecured loan may cost more interest rates and may be harder to establish than a secured loan. An unsecured loan might require that the individual is extremely credit-reputable in order to be approved. Many entrepreneurs start their businesses by borrowing funds from family members, but not taking caution in this process could become problematic for both the business and their personal relationships in the future. An investor is essentially a share-holder in a business until they are repaid. If they are unhappy with a business's operations, they may be legally allowed to intervene in order to protect their investment.

Secured loans are implemented by established collateral that assures the loan will be repaid. The collateral can be used to satisfy the debt if there is ever a default on the loan. This can be a variety of assets, including commercial or private real estate, a certificate of deposit, stocks and bonds securities and a guarantor's signature.

There is almost always an approved repayment period that a debt will need to be settled by. The most common forms or repayment agreements are short-term, intermediate-term and long-term loans. In a short-term arrangement, debt will be satisfied within six to 18 months. In an intermediate arrangement, a three-year period of repayment is established, and in a long-term loan, the individual agrees to repay in five years or less.

Entrepreneurial law is extremely important to the success of any business. However, understanding related legal implications with issues such as taking out a loan can be complicated. Since the investor is generally protected under certain laws until a loan has been repaid, a variety of issues could arise that the business owner may not be able to predict beforehand. A business lawyer might be able to help protect the entrepreneur's assets.

Source: Entrepreneur, "Debt Financing", Accessed on Jan. 11, 2015

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