What to Consider with Business Loan Agreements
A Business Loan Agreement helps businesses and lenders, including other businesses, understand the terms of a lending agreement. A business loan agreement template makes it easy to set up one of these agreements. As you do, use these tips to make it easier on all parties.
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Below We’ll Cover:
- Parts of a business loan agreement
- Clauses to consider
- Best practices for signing business loan agreements
- Additional resources
Parts of a Business Loan Agreement
As you look for a business loan agreement template to use, make sure it includes these key features:
- Effective date
- Parties and relationship
- Loan amount
- Collateral
- Terms and conditions
- Non-payment penalties
Clauses to Consider
Some clauses can help make your business loan agreement a high level of protection for your business. Be sure to include these relevant clauses:
- Defaults clause – A business loan includes promises from both the lender and the borrower. This clause means the agreement is in default if any one party doesn’t fulfill those promises. It will also state what the fines and pleasantries will be for default.
- Payment Terms – Under the payment terms, consider adding a grace period, late fee, and date the payment is due each month.
- Accelerations clause – An accelerations clause allows the lender to make the loan immediately due and payable if the borrower defaults.
- Governing law clause – Business loans may cross state lines. This clause stipulates what state laws govern the oversight and execution of the loan.
- Covenants – This section of the loan agreement includes the promises the parties make. This may include insurance purchased, taxes and fees paid, guarantees about your business, and the delivery of financial statements.
- Binding Effect – This clause indicates that the agreement is legally binding even if the borrower dies and cannot repay the loan. The demand for the loan goes to the successor, heir, or assigns the business puts in place.
- Amendments Clause – This clause indicates if there are any ways for the loan agreement to get amended in the future.
- Severability Clause – This clause indicates the loan's terms remain in effect in part, even if one of the parts is found to be illegal or not enforceable.
Best Practices for Signing Business Loan Agreements
Before signing a business loan agreement, carefully check the covenants. Make sure that your business is able and willing to fulfill the terms of the covenants, and make note of them so you can do so in a timely manner.
Make sure all of the terms and conditions are fair when signing a business loan agreement. Inspect it for terms like early repayment penalties that could hurt the borrower’s interests.
Many business loan agreements require collateral. This is an item the lender can collect if the borrower defaults on the loan. Borrowers should ensure that collateral is reasonable, and lenders should ensure that collateral is sufficient to mitigate their risk in lending.
When singing, make sure you do so securely, because these loan agreements have specific details about both the borrower and the lender that need to stay secure. You can use Nitro Sign to send the contract and have it securely signed remotely without worry of sensitive data leaking out.
Additional Resources
