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The Fine Print: Business Loan Terms

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The Fine Print: Business Loan Terms

By JamieD
Published: August 4, 2009 Updated: February 16, 2011

Most people can tell you that obtaining a loan can be a lengthy process that requires a great deal of paperwork. It's easy focus on the loan's key areas and most importantly, approval. What's less clear is what actually make those documents so long. What is in the fine print?


The Devil is in the Details


Simply knowing your interest rate and length of your loan is not enough. The terms detailed in the fine print of your loan agreement, often times found in the promissory note or security interest section, contains valuable information that can end up costing you a pretty penny in the end. Be sure to pay attention to these common oversights as well as a few simple tips that can prevent you from making costly mistakes.


The Fine Print


Not all the loan terms that make up a loan agreement are expressly documented. The fine print - the small type detailing the technicalities, qualifications, or restrictions of the document - often contains vital information on a loan's terms, too. It's fairly common for the fine print of an agreement to include details on:

  • Whether the interest rate is fixed or variable - and if variable, when it can change

  • The required payment schedule, grace period, and any charges for late payments

  • Prepayment penalties if the loan is paid off early

  • What is considered defaulting on the loan, and the consequences for doing so


This may seem like standard information that should be discussed at the beginning of any loan but that is not always the case. Excitement over approval, the length of time it takes to complete paperwork, and not wanting to ask too many questions are all reasons many loans are agreed to without the recipient having a full understanding of their terms. Whatever the reason, it is important to ignore those impulses and protect yourself and your business.


Get the Background on Your Lender


Doing some research on your lender before making any commitments can be a good idea. If they have a reputation of taking advantage of their clients, chances are it's not to difficult to find that information out.


Consult with the Better Business Bureau or other small business advisors to find out some background information.
Have they had any complaints about hidden costs or unfair terms? Knowing this ahead of time can give you a sense of security or a heads-up on what to lookout for.


Take the Time to Review All Documents


It's not uncommon for a party to agree to terms that have not been reviewed. Doing this opens yourself up to the mercy of the fine print. Take your time and read all documents early and in their entirety. Upon request, many lenders will send term agreements to potential applicants before they have actually submitted their application. If you have read all forms, there is less of a chance that something will surprise you in the future.


Ask Questions Before You Sign


Do not sign any agreement until you understand all aspects of the terms. Your loan agreement is considered a binding contract and should not be taken lightly. Ask as many questions as possible to make sure that nothing is left unclear. People often overlook areas of their agreement that they don't think will ever apply to them. Just because you've never made a late payment in the past does not mean you shouldn't review the policy on late payments. Ignorance is not considered a defense for any legal problems you may incur in the future so you can't say you didn't know. If you
don't know, don't sign!


Message Edited by JamieD on 09-01-2009 12:37 PM

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