While it is always important to read and understand the contracts you sign, loan documents, particularly those that look to be the lender’s printed “standard form” can contain hidden provisions. While a loan may say its “unsecured,” not constituting a lien on your assets, it could contain a “negative pledge” that could prevent using your assets for security for other loans or even obtaining other credit. The negative pledge is that you will not encumber or pledge your assets for another loan or will not incur additional debt until you repay this loan. Especially in situations where you or your business have multiple lenders for various purposes, a negative pledge could stunt your financing or result in a default.
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