Getting a loan to fund a business or a personal endeavor is common in Pennsylvania. To be successful in obtaining a loan one must be prepared and organized. There are many documents that go into making a loan agreement. There are commitment papers, promissory notes, and collateral agreements. A reason for the loan will have to be provided. The debtor will have to convince the creditor of their credit worthiness.
Credit unions and banks are common sources of funding. If the need for the loan is sound, then you should be able to get the loan. You should be knowing about the factors that a bank will evaluate when they consider entering into a loan contract with you. Terms of loans are different depending on the lender. There are two basic types of loans: long-term and short-term. Short-term loans usually last up to a year. Long-term loans are between one and seven years in length. Real estate loans are up to twenty five years.
A written proposal should be made. Loan proposals contain the following:
• The amount required, the purpose of the loan, and some general information about the business or person.
• If it is a business loan, the history of the business and what kind of business it is.
• Age, number of employees, current assets.
• Ownership structure.
• Background, educational experience, skills and accomplishments of the management.
• Information about the market.
• Financial information.
For the loan request review a copy of a credit report, work history, and letters of recommendation are required. The loan officer will obtain the credit report.
Key factors that a bank uses to analyze a possible debtor are:
• Credit history
• Ability to repay
Credit history includes personal credit history and the business’s credit history. Equity is when the business cannot get 100% financing. The business owner must put in money as a form of equity. Most loans will require collateral. Collateral is assets that can be sold in case the debtor cannot pay off the loan. The ability to repay is a measure of whether or not the person has the income or makes a profit from the business and can apply money to the payment of the loan.
A loan contract contains the following:
• Title of the document, such as Promissory Note.
• Names of the borrower and the lender.
• Date of the document.
• State the amount of the loan
• Provide the interest rate. Indicate if it is a simple interest basis or compound interest basis.
• Payment terms.
• What happens if the borrower defaults on the loan.
• Standard clauses such as, choice of law, severability, or entire agreement.
• There should be a signature block.
• Include a notary block.
A loan contract in Pennsylvania requires a number of documents. The interest rate will have to be within Pennsylvania’s usury laws. Pennsylvania’s usury laws are very complicated. These documents should be looked at by an attorney. The most important document would be the loan agreement itself. Also important, are the correspondence used in discussing the loan terms, amount, and other particulars of the loan. A document describing the collateral is also required. Creating these documents can be assisted by using downloadable forms.