What is a Business Loan Agreement?

A business loan agreement is nothing else but a document only. This document plays a very important role in the entire tenure of your business loan. This importance is because of the details and information mentioned in that particular document.

A business loan agreement holds all of the details of your business loan which you are going to opt for. Checking and being clear with each and every clause and terms involved in your agreement before signing it an absolute must. Being not aware of it you can cause serious issues in the future.

It can also happen that even after reading that you may not be able to understand it properly. In this case, you should go to a lawyer and ask them to help you with your business loan agreement. You need to be much more careful about making sure you’re aware of each and everything mentioned in your loan agreement. Sign only when you are sure and confident!

Fundamentals of Business Loan Agreement that You Need to Know

Loan Amount

Checking for the Loan Amount to confirm that you are signing on to borrow that particular amount. In some cases, lenders get ready to provide you loan your the amount you want but they change it on documents as per their convenience. Though it is rare to happen still, one should be aware of these things and should read the agreement properly before signing it.


The loan’s APR is one among the important thing which is mentioned in your loan agreement. Basically, APR measures how much your loan will cost you every year, or the sum you’ll be repaying in total. The interest rate & fees charged are included in this.

So, it becomes very important to consider this point in your business loan agreement.

Even a small difference in your business loan APR could end up costing you more.

Prepayment Penalty

Most of the lenders charge prepayment penalty when you repay your loan before the time period which is mentioned in the loan agreement. So, it becomes very important to check whether your loan comes with a prepayment penalty or not?

If yes! Knowing how much you will be charged becomes the next important thing. Suppose you have saved some amount to prepay your loan, and when you go to prepay if you get to know that you have to pay much more as prepayment charges have also been included in it.

So, it an important fact to consider and know before you sign your business loan agreement.

Penalty Charges

Penalty charges are one which you need to pay on top of your EMI in case of any default in paying the EMI. It varies from lender to lender and there are specific criteria to determine this. In the entire tenure, it may happen that you may not have sufficient money to pay the EMI towards your loan. In such a condition, you should be knowing how much exactly you will be paying towards penalty fee in case of default. If it too much-arranging money by some temporary source and paying your EMI will be a good idea.

Be sure to check your business loan agreement, and then see how much you’ll be charged in case of penalties.

Type of Interest Rate which you will be paying

What type of interest will you paying for your business loan is completely your choice?

It can be fixed or floating, The business loan agreement contains details of what type of interest you will be paying. It may happen that you don’t have any idea about this and you sign the agreement. Being not aware of this can impact your entire borrowing cost, so be wise and look for this detail in your loan agreement. If you have a query then don’t hesitate to ask your lender.

Responsibilities of the Loan Guarantor

It is very important to know the responsibilities of the guarantor. Responsibilities of the guarantor vary depending on the lender. Some even recover the loan amount from the guarantors as according to their clause guarantor is responsible to repay it, in case the borrower fails to repay the loan. Lenders can also sell the collateral which is given against the loan. So, it is very important to know the responsibilities of the guarantor before you sign your loan agreement.

The above-mentioned points are very important to consider while signing the business loan agreement. Neglecting even one or not understand it well can cause a serious issue in the future which may increase the cost of your borrowing or in worse condition can lead to much trouble. So think twice before you sign it! Ask your lender in case of any query or take help from a lawyer.