Anatomy of a Loan Document

Posted on January 10, 2015 in Money & Finance

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From our own 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,

  1. 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.
  2. 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.
  3. 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.

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