Are you a businessman who is looking for a capital injection to grow your company? If so, you may be considering applying for a business loan. However, before doing so, it’s essential to understand the loan agreement terms. This guide covers the critical components of a typical business loan agreement. So, whether you’re just starting or are looking to expand, read on for some valuable insights.
What is a business loan agreement?
A business loan agreement is a contract that legally binds two or more parties, which specifies the conditions they will lend money. A loan agreement generally contains information such as the amount of the loan, the interest rate and repayment schedule, whether collateral is required, among other things.
The most common type of business loan agreement is a promissory note, which may be issued by either an individual or a corporation to secure financing for any number of reasons. Promissory notes are most often issued when an individual or corporation seeks to borrow money. It’s to use in business or commercial activity, and the loan terms must be stated.
What are some common clauses found in a business loan agreement?
The following is a list of clauses found in most, if not all, business loan agreements:
1) The agreement requires the signature of the applicant’s company’s authorized agent(s) on behalf of the applicant. This person legally agrees to abide by the terms set out in the contract on behalf of the borrowing entity.
2) A statement indicating the parties involved in the agreement, usually identified by their full legal names.
3) The agreement specifies that all parties acknowledge that they have had an opportunity to seek legal counsel before signing the contract.
4) There might be a clause specifying that if specific provisions of the loan agreement are later deemed invalid or unenforceable, the remaining provisions remain in effect.
5) Terms for repayment of the money borrowed, including how much will be repaid and when.
6) If the collateral is involved, there should be detailed information on what it is (i.e., equipment, accounts receivable), its value, and any required financial obligations.
How do these clauses protect each party involved in the agreement?
Each clause acts as protection for each party involved. The identity of all parties is explicitly stated, allowing for transparency between the borrower and lender. In addition, it should be clear that the contract cannot be binding if one or more authorized agents have not signed it on behalf of the applicant. Finally, it allows both parties to state that they agree to the terms.
The idea of seeking legal counsel to ensure that one fully understands the terms and implications of a loan agreement is also common, protecting both parties legally. The clause about protecting remaining provisions if specific conditions are deemed invalid or unenforceable ensures that both parties do not focus on just a few violations in the contract.
According to Lantern by SoFi, “When you’re first starting your business, you can help set yourself up for success by properly establishing your business credit.” To learn more about getting a business loan with bad credit, call them today.
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