Here is a typical list of documents that you will be required to sign and submit while you request any bank for a business loan.
There are several documents which you be handed over to put your signatures on. Normally these forms are strange when you look at them for the first time but to make them familiar here is description of each of the documents you will be required to sign.
Loan agreement will describe the terms and conditions of the loan. Loan agreement includes representations ,covenants, and warranties (promises)of the borrower. To be more precise
Representations are statements of fact or declarations made by one party in a contract. An example of a representation by a seller might be that all Property against the seller have been disclosed.
A Covenant is a promise included in a contract or agreement
A Promissory Note which is a document that is part of a business loan package. The promissory note details the terms of repayment, including principal and interest, the length of the loan, late fees, and whether there is a prepayment penalty. It also describes the circumstances under which the borrower may be in default, and what happens in the event of default. Sometimes the promissory note and loan agreement form a single document and at other times they may be separate documents.
A security interest is the interest a lender has in the property that is being used for the assets you pledge in order to receive a business loan. It may include business or personal assets, such as the equity in your home or car. If you have assets, you can get a “secured” loan at better rates than if you had no assets. One of the reasons it is more difficult to receive a loan for a start up is that there are not yet any business assets which can be used as guarantee
It also includes Universal Commercial Code UCC- 1 statute, when personal property (equipment, inventory, and other tangible assets of a business) are used as collateral for borrowing, a UCC-1 statement is prepared, signed, and filed. This process is also called “perfecting the security interest” in the property, and this type of loan is a secured loan.
A personal guarantee is a must weather you have assets or you don’t have assets its kind of a surety to the bank a borrower gives that you will return the loan in time and as per terms and conditions agreed upon by the you and the bank, no matter the business for which loan has been taken runs perfectly or not. A personal guarantee may be required from the business owner even if the business is a separate legal entity, like a corporation or LLC.