Reviewing Your Loan Agreement

loan agreement / loan documents / commercial lending agreement

In a previous post, I outlined how your attorney should work with you in reviewing your loan documents. There is one more thing to add: While your attorney is reviewing the paperwork package, you should be reading it, too.

I know, I know…the last thing you want to do is read through all that paperwork. I sympathize. The last loan agreement that I personally signed was 1¼ inches thick. And to make matters worse, loan docs get thicker all the time – part of the legal bloat as the bank tries to control for every possible risk, real or imagined.

This is probably the most important legal obligation you will enter into this year. If you can’t bring yourself to read the whole thing, at least look closely at the loan agreement itself, and the following sections, if applicable: Guaranty, Cross Defaults/Cross Collateralization, and Collateral Assignments (specific pledges of assets as collateral).

When a client engages me, I look at the loan docs. Often I ask, “Did you know that _____ is included in your agreement?” Many times, the client is unaware of the point in question (even when the client’s attorney reviewed the documents). Many loan agreements have obligations that should make you uncomfortable. You should at least be aware of the dangers.