What is a business loan agreement?
The business loan agreement is a contract that is often required under a variety of circumstances, such as starting a business, buying a building, buying equipment, or buying products to build an inventory to sell. It specifies the amount of the loan, the rate of interest, terms of repayment, and payment dates so that both the borrower and lender have a clear outline of the terms of the loan.
The elements of a business load agreement include the following:
- Opening: beginning with names and residential locations of the parties in the loan agreement
- Loan amount and interest including total interest, fees and extra charges, and interest calculation method.
- Date payment is due
- Defaults and Penalties if the loan goes into default
- Governing Law indicates which provincial laws the loan agreement is subject to
- Costs refers to the costs on the borrower including ensuring collateral is in good standing as well as the ability to pay lawyer and collection fees should the loan go into default
- Representations of the Borrower refers to assurances related the ability to repay the loan, such as assurance that all tax returns have been filed, all taxes have been paid, and that there are no liens on the business.
- Covenants refers to promises made by both parties; for example, proof of insurance, life insurance, guarantees that business will not take on more debt, and promise to present financial statements on a regular basis
- Binding Effect refers to the borrower’s ”heirs, successors, and assigns” to ensure that the loan continues to be repaid should the borrower die or become unable to repay the loan.
- Amendments refers to how the loan agreement can be amended or modified in the future.
- Severability allows the remainder of the contract’s terms to remain effective, even if one or more of its other terms or provisions are found to be unenforceable or illegal.
