Cross-collateralization

Definition

A lender taking your other property as security for this loan.

Why It Matters

This is the clause that reaches past the business. An SBA lender that finds the company's assets worth less than the loan is expected to look for collateral elsewhere, and a house with equity in it is the usual answer: the lender takes a lien on it, and the house stays pledged until the loan is repaid or refinanced. Lenders differ on how much of a shortfall they will tolerate before asking, so it is negotiable in practice. Ask every lender where they draw that line before a term sheet is signed, not at closing.

In numbers: A $1.5M loan against a business appraising at $1.1M leaves a $400k shortfall, which a lender will usually want covered by a lien on other property.