business loans – Peek Skill Project

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
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
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.

Covenant
A Covenant is a promise included in a contract or agreement

Promissory Note
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.

Security interest
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.

Personal Guarantee
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.

Banks look carefully at borrowers, if you are a business owner with poor personal credit, you may be thinking that corporate credit is simply unavailable to you.

This is not true! In fact, the process of establishing good business credit may even help you improve your personal credit because you will have a better understanding of how credit lending works.

In the credit world, there is what’s known as the “Four C’s” of Credit—four things banks look at to determine your creditworthiness. These “Four C’s” apply to individuals and to businesses, and they are:

Character
Character is that when a bank judges your business’s character, it is looking at your size include:

– Location
– Years in business
– Number of employees
– Stock performance

You will need at least 4 trade references to obtain a business FICO score, factors that will affect your credit score include:

– Late payments
– Delinquent accounts
– Available credit
– Total debt

This is why it is very important that as a business you have a physical address, a business phone, answered professionally during business hours, and a business license (if your state requires one).

Capacity
Capacity is about your business that assesses the ability to pay bills. A bank considers capacity including examining past credit histories as well as cash flows and the type of previous dept secured or unsecured. Therefore it is vital that as a business owner you have been paying all your credit bills on time. A late payment on a credit bill is a mark against your business that is not easily removed.

Capital
Capital refers to the capital assets of the business. Capital assets might includes machinery and equipment for a manufacturing company, as well as product inventory, or restaurant fixture. Bank consider capital, but with some hesitation, because if your business folds, they are left with assets that have depreciated and they must find someplace to sell these assets, at liquidation value. You can see why, to a bank, cash is the best asset.

Collateral
Collateral is cash and assets a business owner pledges to secure a loan. In addition to having good credit, a proven ability to make money, and business assets, bank will often require an owner to pledge his or her own personal assets as security for the loan.. Banks require collateral because they want the business owner to suffer if the business fails. If an owner didn’t have to put up any personal assets, he or she might just walk away from the business failure and let the bank take what it can from the assets. Having collateral at risk makes the business owner more likely to work to keep the business going, as banks reason it.

As you can see, the old saying that “banks only loan money to people who don’t need it” is basically true. In order to get a business load, you will need to have an excellent credit rating be able to prove your business will generate revenue to pay the bank loan.

Show that the business assets have value in case they need to be sold to pay off the bank, and pledge your own assets in case the business failure.

Category: business loans

Documents Required to Get a Business Loan

The 4 C’s of Credit for Business Loans