Business Loan agreement is the most important aspect of a business loan which most of the people under-estimate while being happy about getting the loan. A business loan agreement contain all the fine prints related to your business loan. These fine prints are very important and should be known to every borrower.
Review of a business loan agreement before signing is very important and in case if not done you could be taking on debt with terms that aren’t right for your business. The agreement can also include certain things for which you may not be ready. But when you don’t pay attention on those points, it can, lead to certain loss to you.
One can take help from a lawyer to understand the business loan agreement in a better way which the lenders offer and even can negotiate on some point. This will be a great thing as it always good to be sure in money matters.
However, if you are not taking help from a lawyer then also it’s fine. But you need to be that much more careful to make sure you’re aware about the terms and condition which have been included in the document which you’re about to sign.
We are here to guide you through your business loan agreement before you sign. Certain things which should be checked carefully in a business loan agreement are as follows.
Check for the Loan Amount on the Agreement
It is an obvious thing that you have already said your lender about the amount required before signing the agreement. Still it is an important thing to check it on papers before you sign it. There can be a mistake or lenders may do slight change in the amount according to their benefit. So first check for this on the papers.
Check for The Hidden Charges
Some fees and charges are common thing regarding a business loan. But some of the bank will state that there is only processing charge and no other charges. But some of them will include some hidden charges on the paper. So it’s quite important to go carefully through the agreement and check for hidden charges. If found, they can be discusses/negotiated with the lender. If you don’t check for it, it can lead to paying more on the charges that too at the time of disbursal.
Check for The APR
The next big- one should check for in your business loan agreement is- the potential loan’s APR.A loan’s APR measures how much it will cost you every year. And what amount you will be repaying including the interest and fees.Be accurate in determining your business loan’s cost and the interest rate too.Your business loan’s APR should be your point of reference for beginning to grasp how much your business loan will cost you at the end.
Even small difference in point in the loan’s APR can end up changing your loan’s cost and it can affect you a lot.It can happen that a business loan agreement won’t explicitly state your APR. Instead of this one can be quoted an interest rate or a factor rate. In this case one should convert this to APR to understand the true cost of their loan.
Check for the Prepayment and Part Payment Options
Pre and part payment options are provided by some of the banks regarding business loan. And if provided a prepayment charge is taken against it. So while signing a business loan agreement it is important to check for these options. Even if the option is available then one should check for the charges while will be asked for against it. Those banks are best which don’t charge such fees which makes it more affordable and flexible for the users to avail it.
Suppose you took a business loan from XYZ bank and you didn’t read the agreement properly. After some years you get some fund and want to prepay your loan. You went to the bank and get to know that you need to pay some money as a fees to prepay your loan and the amount is more. Prepaying a loan that too by paying more on charges is never worth and not a wise option. So, it is always better to check for this at the time of signing agreement.
Definitions of Defaults and Penalties on it
This is one of the most important thing in the agreement which you need to verify. Defaulting on a loan simply means not repaying it back as determined in the business loan agreement.
However, lenders define this is their own way, some charges penalty even for one months late payment while some does it when continued for three months. But all the business loan lenders won’t claim default in same way. Hence it becomes more important to know things clearly before singing the loan agreement.