A business loan agreement is a document that legally witnesses agreement between the borrower and the lender. It plays a very important role in the entire repayment tenure of the business loan. The agreement is important because it consists of all the details and information related to the loan.
The business loan agreement holds all the loan details in-depth. Checking and comprehending all the clauses and terms involved in the loan agreement form before signing is crucial. Not being aware of the crucial terms may cause serious issues in the future. Or it can also create misunderstanding between the borrower and the lender.
It may also happen many times that the applicant may not understand the agreement details properly. In this case, the applicant may go to the lawyer and ask them to help with the business loan agreement. He needs to very careful and ensure that he is aware of every clause mentioned in the agreement. And then only sign the dotted line.
Things to Know About Business Loan Agreement
Check the loan amount mentioned in the agreement before signing on it. In some cases, the lenders agree to provide you the loan amount. But sometimes change the amount on the agreement as per their convenience. Indeed it is rare to happen, but one should still consider it while reading the agreement.
The business loan’s APR is one of the most important things which is mentioned in the agreement. APR measures what the cost of the loan in a given year is. Or in other words, it is the sum that the applicant will have to repay in total. It is worth mentioning that the interest rate and fees are included in the APR. So, it becomes very important to consider it in the business loan agreement. Notably, even a small difference in APR can make a huge change in the costing.
Most of the loan lenders charge prepayment penalty when the borrower wishes to repay the loan before the pre-decided period. So, it again becomes very important to check whether the business loan comes with prepayment charges or not. If yes, knowing the percentage or charge becomes very important. Suppose, the business owner has saved some money to prepay the loan. But when he goes for the foreclosure of the loan account, he may be asked to pay some extra charge. It makes knowing the prepayment charges vital while signing the agreement.
Penalty charges are the ones which are paid when the borrower defaults on paying an EMI. It varies from lender to another; there is a specific criterion to determine this. In the entire loan tenure, it may happen that the business owner does not have sufficient money to pay the EMI. In such a situation, he should know the amount (charge) that he will have to pay towards defaulting the EMI.
It makes sense to read the business loan agreement carefully before signing it. Understand all the terms and clauses written on it, know the fees you will be charged in case of penalties, and then make the decision.