Secured Debt Verses Unsecured Debt

Have you lent money to a client or partner?
 
Is it taking a long time for that debt to be repaid?
 
What is your debtor’s motivation to repay their debt in a timely manner?
 
How much trust do you have when you loan money?
 
These are questions that every business should ask before giving a loan. There are many different types of loans, and depending on your relationship with your debtor, you may choose one over the other. One big distinction is between secured and unsecured debt. Knowing the differences – and the risks – of the types of loans you’re giving out can be important when the due date rolls around.

Photo Credit: Donna McNeely

 
Secured debt is when money is borrowed and some collateral is put down to ensure it’s repaid. One of the biggest examples of this is a home – If the debtor fails to repay his or her mortgage, the bank can take the house back to make up what it’s owed. Secured debt is generally safer, so you can sometimes afford to be less strict with your loan terms and conditions. Collection services can be more effective with secured loans, since you have a legal right to take back the collateral if the loan isn’t repaid.
 
Unsecured debt can be more difficult to collect. Credit cards are good examples of unsecured debt: the cardholder can make charges all month without paying or promising anything at the time, but when the end of the month rolls around, they have to pay. For these types of loans, you have no immediate legal right to seize the debtor’s assets if they fall behind on payments. However, you can seek your money through other means – court garnishing of wages, reporting the default to credit bureaus, and yes, hiring a collection firm. These loans often have stricter terms and higher interest rates to compensate for the increased risk. A borrower’s credit history is often requested when setting up unsecured loans.
 
When in the market for collection services, Michigan businesses look to Muller, Muller, Richmond, Harms & Myers, P.C.. We have experience collecting on all types of debt, and we’ll work with you to understand the specifics of your situation. You can get started today by filling out the email form on our website, where we can answer all your questions. We offer a free strategy consultation, so contact us soon!