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Things Everyone Must Know about a Business Loan Agreement

Things Everyone Must Know about a Business Loan Agreement

When signing a business loan agreement, you will most certainly pay attention to eminent details such as the loan amount, the rate of interest, and tenure. But the loan agreementcontains a lot more than that. There is fine print that most people may overlook, but these details have a bearing on the amount that you ultimately end up paying.

Therefore, make sure you read the fine print, and if you have any doubts, have your lender clarify them. You could also hire a lawyer to go through the loan agreement and explain every term and stipulation before you sign.

Additional Read: How to Apply for a Business loan in 4 easy steps

In the meanwhile, to get you started, here is a list of business finance elements you must be wary of while reading your agreement.

Type of Interest Rate

There are two types of business loan interest rates– fixed and floating. If you are not aware of the difference between the two, the lender may make that choice for you. But the cost of borrowing can vary significantly with the type of interest rate applicable.

Therefore, before you sign the loan agreement, make sure that you are aware of the kind of interest rate that is applicable and the effect it has on the repayment amount.

Pre-payment Penalty

If you choose to prepay your business loan, most lenders will charge a pre-payment penalty. The loan agreement mentions the pre-payment clause, but applicants often tend to overlook it. Prepaying can be the right way to go when planned with all factors considered. But being unaware of the pre-payment penalty can lead to miscalculations, and this hidden cost may outweigh any savings you were hoping to make by prepaying the loan.

Therefore, before signing the agreement, make sure you pay attention to the pre-payment penalty and other terms and conditions related to it.

Penalty on Default

If you miss any payments, you will have to pay the penalty on default. Throughout the tenure of the loan, there may be times when you don’t have sufficient funds to pay the EMI. In such a case, you should know exactly how much you will have to pay in penalty.

Different lenders may charge penalties differently, therefore make sure you read the loan agreement carefully to know how you will be penalized, in case you miss a payment. You can use an online business loan calculator to plan your repayment schedule and avoid defaulting.

The Guarantor’s Role

To meet the business loan eligibility criteria, you may require a guarantor. Depending on the lender’s terms, the guarantor may be liable to repay the loan if the borrower defaults. Therefore, to ascertain the role of the guarantor, both the borrower and the guarantor must go through the loan agreement carefully before signing.

If you are looking for competitive interest rates, borrow from Tata Capital. We offer business finance with minimal documentation to ensure a hassle-free borrowing process for you. We offer tools like the business loan EMI calculator to help you explore different repayment options.

Additional Read: How to submit your Business loan documents like a pro and get them approved

Visit our website, or give us a call today to learn more.

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