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What are Loan Documents?
Loan documents are documents provided and requested by lenders for the purpose of providing a loan. They are typically statements of personal and financial information of the borrower to approve a loan. These documents are used by the lenders to evaluate whether or not they will provide you with a loan.
Loan documents are necessary to initiate a loan approval process by a lender. Some documents that may be required are tax returns, bank statements, pay stubs, W2, and a proof of income.
Types of Loan Documents
There are four types of loan documents:
- Loan Estimate : An initial loan estimate outlines the terms and costs of the loan. It is the first part of the paperwork provided by the lender.
- Rate Lock Form : A rate lock form, once signed, makes the loan estimate binding. It establishes a rate for a specified period of time.
- Borrower’s Information : The lender will request paperwork from the borrower for the purpose of evaluating the risk in lending money to the borrower.
- Closing Disclosure : A set of disclosures or closing disclosure is the final part of the lending process. This includes any riders or terms that apply to the loan.
Individual terms and forms within these three documents could include borrower information, borrower affidavit, financial documents, escrow related documents, etc. depending on the type and purpose of the loan.
Here is an article about specific types of loan documents.
Essential Terms in Loan Documents
There are some essential terms in loan documents that you should look out for. Here are ten provisions every loan agreement should have:
- Identity of parties : Names of lenders and borrowers should be stated along with address and other information about the parties.
- Date of agreement : Like most legally binding contracts, a loan agreement should also mark the date of initiation along with signatures by all parties.
- Amount of loan : Loan documents should include the exact amount of loan.
- Interest rate : Interest rate on the amount loaned should be mentioned in the document.
- Repayment terms : Loan agreements should always discuss ways in which the loan can be repaid along with any associated conditions with the repayment, such as timeline and deadlines. Often repayment is of three different kinds: payment on demand, payment at the end of the loan term and payments in installments.
- Default provisions : The loan agreement should define what constitutes as default and remedies in case of default. Default occurs when the borrower fails to meet repayment requirements.
- Signatures: The loan agreement will always have signatures of both parties, making the contract legally binding.
- Choice of law : The choice of law clause outlines the state whose laws will be applied in interpreting the agreement.
- Severability: This clause allows for the agreement to still be enforceable and continue even if some parts of it are declared unenforceable.
- Entire Agreement : The entire agreement clause precludes any party from claiming that there are other agreements in addition to the ones stated in the loan agreement.
Here is an article about loan terms and types of loans.
Required Loan Documents
Lenders require loan documents from borrowers as proof of financial and personal history. These are some of the common loan documents that you might see depending on your loan type:
- Tax returns : In cases of sole proprietorship or partnership, you will need to provide personal tax returns. In case of LLC or corporation, you will provide your business tax returns.
- Bank Statements : Bank statements should have the name of business or the business name should appear in bank records. These could be in the form of business fees or any business-related fees.
- Proof of business : In order for lenders to understand business structure and legitimacy, you will need to provide business registration documents.
- Business permits/license : Business licenses and permits help you establish ownership of your business. Lenders can use this to ensure they are lending to the right person.
- Employer identification number (EIN): Employer identification number (EIN) is assigned by the IRS and can be required by lenders. Sole proprietorships would need a EIN if they hire any employees. Sometimes this number would be required as part of your loan application.
- Business financial documents : These can include profit-loss statement, balance sheet, cash flow statement, etc. These detail a company’s performance and would be required by the lender.
- Loan history : Lender would require information regarding your other loans to assess your debt level and ability to repay the loan.
- Proof of collateral : Sometimes lender would require a collateral and the proof of collateral before lending any money. The collateral is generally an asset of sufficient value to offset the loan amount.
- Business plan : Sometimes lenders can ask for business plans to document and detail business goals and predictions. The plan can include product details, customer analysis, supply chain, industry analysis, finances and cash flow.
- Account details : Lenders can require accounts receivable aging and accounts payable aging reports. These two reports provide information about how you manage your working capital. Accounts receivable aging document is usually required for a firm that operates in the business-to-business (B2B) segment. If your B2B company provides goods/services on credit terms, it will show up on your accounts receivable aging report. An accounts payable aging report informs the lender about the number of days of credit received from suppliers.
Here is an article about business loans.
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- Loan Application : A loan application will be required by your lender to initiate the lending process. It will ask for your personal information and loan amount required.
- Proof of Identity: You will need your identity proof to initiate any loan borrowing process. These can include driver’s license, passport, state-issued ID, certificate of citizenship, birth certificate, military ID, etc.
- Pay Stubs/W2/Employer/Income Verification : While there is no collateral backing a personal loan, lenders often require proof of employment to assess risk in lending. These could include pay stubs, employer’s contact information, income tax returns, bank statements, etc. Apart from these you will also need to provide your credit history and ensure that the desired loan amount is reasonable based on your credit history.
- Address proof: Proof of living situation can help lenders assess risk in lending as well. These could include utility bill, lease terms, proof of insurance, etc.
Here is an article on personal loans.
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I joined Enterprise Law Group, LLP as an Associate in March 2020. My practice has involved a wide range of legal matters from commercial real estate, finance and international business transactions to litigation matters including commercial disputes, personal injury and medical malpractice. Proficient in Spanish, I graduated from the University of Kentucky College of Law, the Patterson School of Diplomacy and International Commerce, and the University of Southern California. Prior to my legal career, I sought diverse professional experiences. After graduating from college, I orchestrated my own volunteering experience in southern Peru with a small non-profit organization. Later I gained valuable professional experience as part of a U.S. Senate campaign, and after that I joined the public policy team at Greater Louisville, Inc., Louisville's Chamber of Commerce affiliate. Prior to law school, I embarked on a month long excursion with the Northern Outdoor Leadership School in Alaska, which gave me a new found appreciation for sustainability.
Agnes Mombrun Geter is the Founder and Managing Attorney of Mombrun Law, PLLC. She is an experienced attorney and is a member of the Florida Bar, New Jersey Bar, and the Pennsylvania Bar. The firm's practice focuses on Estate Planning, Business Law, and Debt Settlement including IRS Debt Relief. The firm's goal is to simplify the law and provide clients with the confidence and information necessary to make their decisions. The firm also provides project-based legal services to other attorneys and law firms, along with assisting as personal counsel and local counsel on legal matters.
Have over 40+ years of corporate and commercial law experience.
I am a business attorney with years of experience advising individual entrepreneurs and small businesses on issues ranging from entity selection/formation to employment law compliance, to intellectual property protection and exploitation. I often act as General Counsel for my clients fulfilling the legal function as part of a team of managers. I look forward to learning more about your business and how I may be of assistance.
Corporate and transactional attorney in sixth year of practice. Focus areas include general corporate counsel, labor and employment law, business partnership matters, securities matters related to privately-held companies, and regulatory compliance in securities and finance matters.
Forest is a general practice lawyer. He provides legal advice regarding small business law, contracts, estates and trusts, administrative law, corporate governance and compliance. Forest practiced complex commercial litigation in Florida for eight years, representing clients such as Host Marriott, Kellogg School of Business, and Toyota. Since moving to Nashville in 2005, he has provided legal advice to clients forming new businesses, planning for the future, and seeking funding through the use of equity and/or debt in their businesses. This advice has included the selection of business type, assistance in drafting and editing their business plans and offering material, reviewing proposed term sheets, and conducting due diligence. Forest is a member of the Florida, Tennessee, and Texas Bars; in addition. Forest has held a Series 7, General Securities Representative Exam, Series 24, General Securities Principal, and Series 63, Uniform Securities Agent State Law.
CA, NY, and FL licensed attorney with nearly a decade of experience in intellectual property, data privacy, commercial contracts, and employment. I also have both the CIPP/US and CIPP/E privacy credentials. Basically, everything your business needs!