From our own Entrepreneur.com comes this handy article by Sean Melvin, Esq. on what to look for in a small business loan package. As Melvin points out, the package usually “comprises three documents, including a loan agreement, a promissory note, and some form of guarantee and surety agreement.” Briefly,
- The loan agreement contains the “representations and warranties” of the borrower. These are your promises to the bank that you’ve complied with certain conditions.
- The promissory note details the principal and interest amounts owed and when payments are due, and it outlines the events that would allow the bank to declare your loan in default.
- The guarantee/surety agreement is your promise to the bank that, if your business fails and can’t pay the money back, you’ll pay back the loan with your personal holdings.
The consequences of default on a loan can be serious–to both your business and personal credit. So make sure you review them with an attorney to fully understand the risks involved.
This entry was posted on Monday, July 28th, 2008 at 5:24 pm and is filed under Business Planning, Financing, Legalese. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.2 Responses to “Anatomy of a Loan Document”
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October 1st, 2008 at 3:45 am
Thanks for the post. Very handy for someone who is about to apply for a loan!
December 24th, 2008 at 9:36 pm
Nice post, keep up the good work!