California Business Loan San Diego Details

Business Loan Contracts Overview

If you are borrowing from a bank or large institutional lender, the lender will likely have standard loan documents it insists upon using for its transactions. For very complex transactions with these lenders, or for borrowing or lending with an individual or smaller lender, custom loan documents drafted by an attorney should be utilized. Attorneys’ fees are customarily borne by the borrower in these transactions.

Basic Business Loan Provisions

The basic provisions in any business loan contract include (1) an agreement to lend and borrow money, for a fixed term or as a revolving line of credit; (2) the conditions precedent which the borrower must satisfy before the loaned funds are disbursed to the borrower; (3) representations and warranties by the borrower; (4) affirmative and negative covenants from the borrower for topics such as the borrower’s collateral, use of the loaned funds, and legal compliance issues; and (5) provisions for enforcement of the agreement should the borrower default on the loan.

Secured Loans

If a borrower uses collateral to secure a loan from a lender, a security agreement or security clause within a loan agreement must provide for the lender’s right to gain title to the collateral should the borrower default on the loan. At a minimum, a security agreement or security clause within a loan agreement must (1) grant the lender a security interest in the collateral; (2) define the obligations which are being secured with the collateral; and (3) identify the collateral with reasonable specificity. The security agreement or contract containing a security clause must also be signed by the borrower to be enforceable against the borrower’s collateral.

Guaranty Agreements

A loan guaranty allows a lender to seek repayment of a business loan from the persons or business entities that have guarantied the loan on behalf of another person or business entity. Guaranty agreements are commonly required of shareholders or other business owners seeking loans on behalf of unseasoned or business entities or business entities with less than acceptable credit. Loan guaranties may be used absent or in conjunction with a security agreement or security clause within a loan document and, like the verbiage securing a loan with collateral, loan guaranties may be made with separate guaranty agreements or with guaranty clauses within a loan document.

Promissory Notes and Other Debt Instruments

Promissory notes are generally only one part of a larger package of business loan documents. At a minimum, promissory notes should contain (1) the identity of the debtor and creditor; (2) the principle amount; (3) the interest rate and how the interest rate is calculated; and (4) the dates when principle and interest are payable and what recourse is available to the lender should the borrower default on one or more payments.