Understanding what each commercial lending document states and how that information is critical to your loan is very important to insure that you are getting the loan and terms that are best suited for your needs. It also helps you to understand what is expected of you and your business during the time frame of the loan.
Your loan agreement will contain most of the important information about your obligations to the lender and their obligations to you. First, the agreement defines the parties involved in the loan agreement. It is stating that your business and you by extension are the borrowers and if also defines the lender. Next it will cover the legal items such as conditions precedents, representations and warranties, affirmation covenants and negative covenants and events of default. All of this legal information is best reviewed by your business lawyer or attorney. In most cases it is very standard but even the most standard of legal documents can be confusing to anyone without a law degree. It is always best to have any contract or agreement reviewed by a legal professional before signing.
The promissory note is a document that provides the lender with additional security and confidence that they will get their money back for the loan that they are processing for you. This document is telling you, the borrower, how much is to be paid back and when it is to be paid. You are agreeing to the terms and conditions of the repayment schedule by signing the note. It is also important that you understand that a promissory note is a liquid asset and that it can be sold by the lender.
There are a number of other documents that your lender could include in your processing. Some would pertain to your business such as the corporate resolution, the deed of trust, the guaranty, and the pledge agreement. Other documents are very general but cover any legal loopholes that might arise. These documents could include an error and omission agreement, the disclosure and authorization forms and the security agreement. Again, any of the documents that you are not familiar with should be reviewed by your legal professional prior to the signing of the loam agreement.
The Borrowers Commercial Lending Agenda
When you are reading the loan documents you will be looking for certain points which should be defined to meet your needs. You want to see that funds will be available when you need them and at the interest rate that you had agreed upon. You will also want to verify the repayment terms of the loan. This means that you have the time that you requested to complete the repayment process and that any grace periods that you requested are included in the documentation. In general, you are looking for the lowest cost loan with the most beneficial repayment plan that you can get.
Understand the Lenders Goals
As well as understanding your goals and requirements for the loan you need to understand that the commercial lending firm has the opposite goals. They are looking to make money from the process and to do that they will need to get as much interest from you as possible. This can be done with a higher interest rate, a balloon payment or added fees. Reading and understanding all of the documentation for your loan will insure that you are getting the best loan to meet your needs and at a fair cost.
Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
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