Pawning a Vehicle to Raise Business Funds

Are you considering pawning a vehicle to raise business funds?

A loan against a vehicle is a very fast, straightforward way to get urgent funding, but it’s important to consider whether this type of loan makes sense for your business’ needs.

When is it a good idea to pawn a vehicle to raise business funds?

Pawning a vehicle to raise business funds is a legitimate and commonly used way to secure short-term business funding.

However, it doesn’t make sense to get this type of loan if your business doesn’t meet certain criteria.

Below, we detail the advisable criteria your business should meet before using a business vehicle to secure a loan.

The business is not failing

It can be tough to accept when a business is no longer viable. Getting a loan to cover shortfalls is only prolonging the inevitable.

Take a hard look at your business’ prospects before you pour more money into it, especially using a loan. You may end up with extra debt and the same inevitable conclusion.

If your business is not failing and is still viable, a loan may be a sensible business decision.

You’re facing a temporary cash-flow shortage

Short-term loans are commonly used to bridge the gap caused by temporary cash-flow issues, such as losing a client or a late payment.

For example, when you’re waiting for an invoice for a large job to be paid but you still need to pay staff wages in the meantime.

This type of cash-flow issue is temporary. It can be remedied with a loan against an asset like a vehicle. It doesn’t mean there are ongoing or crippling cash-flow issues in the business.

Examples of urgent reasons to take a loan to cover temporary cash-flow issues include:

paying staff wages or salaries
paying suppliers for vital materials, services or software
paying a tax bill to avoid stiff penalties
fixing vital equipment or machinery.

You can pay back the loan in the short term

If you know you’ll be able to pay back the loan in a short amount of time, then the risk of a loan against a vehicle is minimal.

For example, if you need to buy a new machine that’s vital to securing a lucrative new contract or tender, then a short-term loan makes sense.

In this scenario, you’ll quickly be able to repay the loan once the job is done and the client has settled the invoice.

Your business can survive without the vehicle

When you pawn a vehicle to raise business funds, the lender takes temporary possession of it. The business can’t use the vehicle until the loan is repaid.

If the vehicle is vital to the day-to-day operations of your business, for deliveries say, then this type of loan is not recommended.

If your business can still function for a few weeks without the vehicle, there’s no harm in the vehicle sitting in secure storage for a while.

While “pawn-and-still-drive-it” options do exist, they’re very risky. They often result in businesses losing their vehicles when they can’t pay the exorbitant interest or hidden costs.