LAW 204 Lecture Notes - Lecture 10: Chattel Mortgage, Secured Loan, Revolving Credit
9 Mar 2021
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Financing the start-up business: assuming the entrepreneur isn"t independently wealthy there are 2 choices, equity financing- selling shares (last week, debt financing (this week) Interest payments are tax-deductible expenses: but creditors get paid first- before the founders. I. e. borrowing from bank/single creditor: term (project) loan- think car loan (most common, revolving credit ( operating line )- think credit card, demand loan. Issuance of debt obligations (less common for start up: promissory notes, bonds and debentures, treated like securities- potentially tradeable, spreads out lending across many, not common in a start up. Interest rate: collateral, small commercial borrowers often simply given standard charge terms, owner-manager guarantees. Two categories of loans: two types of lending: secured and unsecured, security means collateral, extra protection for lender in the event of a breach by the borrower of the loan agreement. Unsecured lending: an unsecured loan is one rendered where no security interest is given or intended to attach (i. e. there is no collateral)
