Costs
Part of Secured business credit is a trade, not a favor from the lender
5 questions for a secured business credit review
A secured business credit review asks whether collateral is needed. Use five questions to check the pledge, bureau files, lender terms and release options.
A secured business credit review is one decision, repeated annually: should this arrangement still be secured? It is a narrower question than reviewing a facility's terms, and it is the question that goes unasked for years.
Start with fifteen minutes once a year to inventory each secured arrangement; follow up separately if checking records or obtaining quotes takes longer.
What to take away
- Security is a stage, not a permanent category. Businesses stay in it long after they could leave because nobody scheduled the question.
- The review needs two answers from outsidewhat your current provider would do now, and what somebody else would offer.
- If the answer is to stay secured, write down why, so next year's review starts from something.
Set the date first
Attach the review to something that already happens: the anniversary of the
arrangement, the end of the financial year, the annual insurance renewal. Anything that arrives without you remembering it.
Reviews that depend on remembering do not happen, and this one is invisible when it does not, because a secured facility that is working gives no signal.
The five questions
1. What exactly is pledged today? Not what was pledged originally. Balances
Five secured credit review questions
- What exactly is pledged today?
- What would that asset otherwise be doing?
- Has anything changed underneath?
- What would this provider do now?
- What would somebody else offer?
Review the signed security agreement, any personal guarantee, and any borrowing-base or deposit-account control agreement. Together, these documents show what collateral is covered and what obligations are guaranteed.
For many personal-property liens, a UCC-1 financing statement is the public filing used to perfect the security interest under the Uniform Commercial Code (UCC). Deposit-account collateral may instead be perfected by control, so it may not appear in a UCC search. Search the applicable state's Secretary of State UCC records, or its designated filing office, under the business's exact legal name, then compare the filing's collateral description and secured party with your documents.
2. What would that asset otherwise be doing?
3. Has anything changed underneath?
4. What would this provider do now?
Request the applicable release clause and the conditions in writing. Ask whether a partial release requires a specified paydown, replacement collateral, or a borrowing-base test, and whether full release depends on paying all secured obligations.
5. What would somebody else offer? One conversation elsewhere, unsecured, is the only way to know whether question four got you a real answer or a comfortable one.
Get written offers from another bank or credit union for an unsecured business line of credit and a business credit card. Compare the credit limit, APR, annual and origination fees, personal guarantee, bureau reporting, and collateral requirements; neither product is guaranteed to be available or cheaper.
Reading the answers
If nothing has changed underneath, the review is short and the answer is to
Reading the review answers
Has anything changed underneath?
Provider moves or unsecured alternative exists
Stay secured, write it down and move on
If something has changed and the provider will not move, you have a choice between the relationship and the money. That is a real tradeoff and it depends on how the provider behaved when you needed it.
If something has changed and an unsecured alternative exists, work out the switching cost honestly. Get written dollar amounts for any payoff, release, amendment, or account-closing charge, plus the new facility's origination, annual, and filing fees; include any deposit or collateral that remains tied up. Releasing security takes time, an application takes effort, and a new arrangement resets a relationship. Sometimes staying is still correct, and now it is a decision rather than an oversight.
Do not close things carelessly
Moving off security often means closing an account. Before you do, check what closing removes from the record: the length of the relationship, the reported line itself, the only entry at one particular bureau. Those can matter more than the deposit.
Running the wider account review at the same time is efficient, and the sequence for that is in credit foundations checklist.
What to write down
Four lines is enough. What is pledged, what it would otherwise do, what the
provider said, what you decided and why. Date it.
That record is what turns next year's review from an investigation into a comparison, and it is the difference between reviewing annually and reviewing once.
For a neutral outline of the alternatives this review is comparing against, the SBA's material on getting more funding covers the ground, and its loan programs page sets out what is available without a product being sold to you. The groundwork underneath all of it stays in credit foundations.
The SBA 7(a) Loan Program and 504 Loan Program are alternatives to investigate when the financing purpose fits, but neither is automatically an unsecured replacement. Check each program's eligibility and collateral terms before comparing it with a revolving facility.
Common questions
Is annual often enough?
For most businesses, yes, plus an extra look after anything structural: a large repayment, a new facility, a change of entity. More often than that produces the same answer and less action.
The provider says the security is required by policy. Is that final?
It is final for that provider on that product today. It is not a statement about the market, which is why question five exists.
Should I reduce the security or release it entirely?
Partial reduction is often available where full release is not, and it is worth asking for specifically. Check the agreement's conditions and ask the provider for a written release letter identifying the collateral being freed. For a filed UCC-1, confirm whether the lender will file a UCC-3 amendment to remove released collateral; request a UCC-3 termination statement only when all obligations secured by that filing are satisfied and the filing can be ended. Search the state filing office again to confirm the update. Providers answer the question you ask rather than the one you meant.
