18+ Sample Business Loan Agreement

What is a Business Loan Agreement?

A business loan agreement is concord between a business and a lending company that lends to it. This document contains the promise of the business that loans money from the lender to pay the money that the lender will promise to give to it. A business loan is also called commercial loan. The loan is made so that the business will have money to use in all its operations. Maybe the entrepreneurs will want to expand their business. Maybe they are preventing the event of bankruptcy. Maybe they are lacking money to keep their business running. A business loan is used in any business to sustain it. In a business loan agreement, the details of the loan are outlined. Whether you are going to have a business investment loan agreement, business finance loan agreement, or an unsecured business loan agreement, the agreement has all the terms and clauses that will make the understanding between the lender and the business clear. Borrowing money is an act that needs some legality, so an agreement is a must. Lending money has risks. If you will not have an agreement, the borrower may tend not to pay you. If you are borrowing from lenders like banks, you should expect that you will have an agreement with them. These entities are wary in securing their money and interest. They have to ensure that you will pay them, so you have to enter an agreement. Whether you are having an equipment loan or a money loan, they need to secure the chance that you are going to pay them back. A business loan agreement is the best way that lenders can secure payment for loans.

Elements of a Business Loan Agreement

Do you know how to write a business loan agreement? Can you write all its elements without having a business loan agreement sample or free business loan agreement template? If you are still asking what are the elements of a business loan agreement, you can refer to this article to know its elements. Read the following and know some of the elements of a business loan agreement:

Effectivity Date

The effectivity date is the date when the money is given to the borrower. Usually, this is the date when two parties signed the contract. From this date, all the terms within the agreement will be effective. Both parties should comply with all the terms written in the business loan agreement.

Information of Parties

The main information about the two parties or the lender’s data and the borrower’s data should be written in the contract. It is important because you have to write to whom the money is due and who should pay it. Write the information about the two parties clearly. Write the business name of the business that is going to borrow the money and the company that will lend the money.

Business Loan

The amount of the money that is going to be borrowed should be written in the agreement. You cannot have a mistake in stating the amount because it is the amount that the borrower will pay. Be sure that the amount is accurate so that there will be no issue in your dealing. Whatever will be written in the agreement is the money that the lender should give to the borrower as a business loan.

Promissory Note

A business loan agreement goes together with a promissory note. This is a letter that is written by the borrower promising that he or she will pay the owed amount on a particular date or dates if the money will be paid in installment. This letter will be a separate document that will be attached to the agreement. In writing this, you must ensure that you will pay the money on the times that you have promised.

Collateral

Secured loans need collateral. The borrowers should make some of their possession as collateral that can secure the payment for the loan if they will not be able to pay the money that they have borrowed. The cost of the collateral will pay the money that they owed to the lender. Instead of money, the lender will have the right to their possession as a payment for the money that they owe. Some banks do not lend money without collateral. Because only through it will they secure that the money that they will give will have a sure return.

Terms and Policies

Like in all the agreements, a business loan agreement has essential terms and conditions. There are some rules regarding payment like rules in installments and others. You must agree with the interest rate for the amount that is loaned. Things like how long will you pay your loan should also have terms. The lender always has some conditions in lending money to the borrower. The borrower should agree with these terms and conditions to get a loan from the lender.

Penalties

If borrowers cannot pay on time with the installments, they can have penalties for it. They should pay an extra price for not paying at the right time. You should have a clause in the agreement for this thing. In this way, borrowers will do everything to pay on time because they will not want to have extra payment for the thing they owe. Through this, lenders can ensure their payment. This will be a good thing for them because if borrowers will have a late payment, they can have extra profit from the money that they have lent.

Governing Rules

You should state some governing laws that are applicable in your agreement. Check your state laws so that you can be sure that you are complying with the right laws. State a few sentences about the law that governs your agreement. This will make your agreement more binding. It makes the agreement more enforceable for both of you.

Representations

Lenders may require other persons to represent you for the agreement. It may be the board of director that can testify that you have made a loan and that you are going to pay it. These persons will also sign the agreement and will guarantee that you are a good payer and that you will pay on time. They will swear with you that you will pay as you have promised.

Covenants

Some covenants may be required within the agreement. You may promise that you will not have additional debt with other lenders while you are still paying the money you owed. The lender should ensure that you are capable of paying your debt. Another covenant that the lender can request is to ask for your insurance. Your insurance should pay your debt in case anything will happen to you or if you cannot pay the lender. Other covenants may be made just to ensure that something will compensate the money that you have borrowed.

Tips on Business Loan Agreement

Whether you are going to have a simple business loan agreement, you may want to have some tips that can help you. A business loan agreement template or a business-to-business loan agreement template may not be enough to guide you. You may want clear practical tips that can guide you. Consider and apply the following tips:

Show That You Can Pay: To have a good relationship with the lenders and for them to lend you money, you must show that you can pay whatever you will owe to them. Show that you are a good payer. You can do it by showing that you have a reliable business that can sustain the money that you need for paying the loan. You can also show your possessions that can serve as your collateral. Some lenders will not give you loans if they cannot guarantee that you can pay them back. So, to be sure that you can have a loan, you should give lenders a reason to let you borrow money. Be someone capable of paying back the money.Get a Guarantor: Some lenders may need much assurance that you can pay them before giving a loan. If you do not have enough things to show them that you are capable of paying, you can get a guarantor that can help you to convince them that you are going to pay. It does not necessarily mean that the guarantor will pay for your debt. You will just use the guarantor’s name and possessions so that lenders can give you a loan. Be decent to pay your own debt. Just use the guarantor for the sake that lenders will loan you. Do not get guarantors if you will not be able to pay your debt or if you will pass your debt to them. Just helping you throughout to have a loan is enough help for you. Get a guarantor and pay your debt.Be Realistic in Borrowing: You have to be realistic in borrowing money. Borrow only what you know you are capable of paying. Calculate your business revenue and all your expenses and see how much you can pay for each month. You can use it to get a value for the money that you can borrow. Do not loan too much money. Do not loan something that you know you cannot pay or will be too much for you to handle. You are going to make yourself in bad debt if that will happen. To be sure that you will not fail lenders by paying them on time, borrow only money that you know you can pay well. This way, if you will be a good borrower, you can loan to the lender again. You will always have a good resort every time you need some money. The lender can easily lend to you if you will be a good payer.A Good Business Plan: You are going to loan money because you are going to keep your business running. But you cannot run your business well if you will not plan where you are going. You need a business plan that can make your business successful. You cannot waste the money that you loaned. For one thing, you have to pay it back. So, you have to be sure that your business will run smoothly. You need to ensure your profits. A business plan can help you to succeed. Through a good business plan, you can have many clients and you will have more returns from your business.Have Financial Knowledge: You need to be equipped with financial knowledge when making business loan agreements. You should be aware of cash flows and sales forecasts. You should be a master with all your financial projections. You need the right knowledge so that you can handle your financials well. Study everything about financials. Though you are going to make a loan, you will not be in total debt because you will be capable of paying it back.

How to Write a Business Loan Agreement

Do you need a standard business loan agreement template or a business loan agreement template? Are you in a hurry to create an agreement because you are going to lend a business owner? Before you worry about what you can write in your agreement, take some time to read the following steps that you can apply in writing your business loan agreement. Have the following steps:

  • Step 1: Make an Introduction

    An introduction is the first part of the agreement. Create a good title for the agreement. At the very beginning of the document, place the date and the type of agreement that you are going to enter. Start with the basic information about both parties. You must put the name or the business name of the borrower and the name or the business name of the lender. This should be the beginning of your agreement.

  • Step 2: State the Terms of the Loan

    Then, you should go on with all the terms of the agreement. State the amount of the loan. You should put some terms about payment, installment, interest rate, and penalties. Have some terms and conditions that you can follow. Place the terms for collateral and state a clause for representation. Have some covenant terms that can secure payment for the amount to be owed. Have some terms for default so that you will know what to do if ever the borrower cannot pay the money back. Make all the terms clear so that both of you can comply with the terms and policies.

  • Step 3: Make a Statement

    Then the borrower should make a statement that he or she is going to pay the borrowed amount. The borrower should promise to pay back in a particular time or times if installments will be made. This statement can come in the form of a promissory note. If you do not know how to write a promissory note, you can refer to any sample loan document. It can have a promissory letter that can guide you.

  • Step 4: Sign the Document

    After you have made a draft of the document, then start writing the actual document. At the end of the document, leave a place for your signature and the signatures of the borrower and guarantors. Then sign the document after reading it, ensuring that it has no mistake and all of you agree with all the terms. After that, you can release the money to the hand of the borrower and wait for him or her to pay on the promised dates. Anyway, you have a business loan agreement to depend on.

FAQs

How much is the usual business loan or bank loan?

The money that you can get from a bank loan when you are going to have a business loan ranges from $107,000 to $165,000. Its interest rate ranges from 2.54% to 7.02%.

How much do you need to start a business?

If you may need to start a business, you may need $5,000 to $100,000. If your business is small or a startup, you may not need a business loan. Unless you truly have no capital to start a business. For big businesses, you may truly need the help of a bank loan so that you can have enough capital.

If you are an entrepreneur and you need some help in financing your business, a business loan agreement is the answer. You can borrow some money that can help you in your business. You just have to pay back what you will owe. Well, are you needing a template for a business loan agreement? This post has 18+ SAMPLE Business Loan Agreement in PDF | MS Word. This can provide your need. Download now!