Merchant Compliance - loan agreements

 Loan Agreements

There may come a time when your business venture needs a loan from family, friends or even a venture capitalist.  Even if your monies will be provided by the latter, you should approach a loan agreement the same way as if you were going to a bank.  When requesting such a loan, you should be prepared to present your formal business documents.  This includes your business plan and a professionally drafted loan agreement.

You’re making a business case, and, as such, you should be prepared.  When asking for a set amount of monies, it’s wise to revise your business plan before presenting it to your investors or financiers.  The revised business plan will incorporate the investment amount, and what you plan to do with the loan.   (For example, you would illustrate how you plan to expand your business and increase its earning potential with the injected funds.)

When drafting a loan agreement, keep in mind that you’re creating a legally binding document.  It should outline and specify the terms inherent in the transaction.

A loan agreement should, at a minimum, include the following information:

      • The complete names and contact information of both (or all, if more than a single borrower and lender) parties;
      • The condition(s) of use, or what it is understood that the monies will be used for;
      • The repayment schedule; the length of the repayment schedule and the interest rates. You may want to figure out the amortization of such multiple payments spread out over a period of time.  There are amortization calculators on line that will help you generate the specific amounts;
      • Whether or not there is an opportunity for a full repayment, and whether or not there will be a penalty tacked on to the amount due if this occurs; and
      • How the possibility of a default in the payment schedule will be handled.

These are the basics which should be included in a loan agreement.  An experienced lawyer can assist you in drafting a business plan and loan agreement.  Waivers and language provisions can also be used to further modify a more multi-layered transaction.


Retail Installment Sale Agreements

If you would like to prepare and enter into a Retail Installment Sale Agreement—sometimes considered a financing product—you may want to consult with a lawyer on issues such as recording a lien; the permissible interest rates, and what should transpire if a default occurs.  Just buying a stock form may put you at risk or be unenforceable. An attorney can advise you as to specific rules, and laws that apply to your type of business.

The areas a lawyer will insure are addressed include;

      1. The full names and contact information of the parties; where payment is to be mailed, and whether electronic transfer or direct deposit into the seller’s account is to be offered as an option for the buyer’s convenience;
      2. A description of the goods which you are selling;
      3. The purchase price and terms of payment.  (You will include a line for the deposit amount, and deduct that amount from the total);
      4. Interest charges and late payment fees, if they apply;
      5. A clause indicating whether the buyer can prepay without penalty.  This clause should also indicate if the prepayment will be applied first to outstanding late fees, then to the accrued interest, and only then to the outstanding balance;
      6. A description of how a default will be handled;
      7. Collection fees, if they enter into the picture;
      8. Ownership. The seller affirms that s/he is the true owner of the goods, and that the goods are free of liens or encumbrances;
      9. Any warranties or guaranties should be outlined;
      10. A disclaimer indicating that the goods are sold “as is”;
      11. Notice of Security Interest, or a lien, which is to be recorded on the goods until payment in full is made.  This may include a Transfer of Ownership and Cost, indicating that five (5) days prior to payment in full, the Buyer shall issue a lien release;
      12. A description of Possession and Transfer of Risk.  You must detail when the risk passes to the buyer and who will cover maintenance and repairs; and, finally
      13. Jurisdiction.  You will need to decide on what state’s laws will serve to hold the parties accountable.
A one page “agreement” between “good folks” will not stand up to judicial scrutiny, so it’s just good business to consult with an experienced lawyer who can assist your business in minimizing risk, liability and insuring that you are compliant.


When leasing a vehicle, the laws regarding the drafting of such documents vary from state to state, but the general wording and terminology is usually similar, as the provisions are the same.  The purpose of a lease is to spell out the obligations of both buyer and seller. You may want to have a lawyer glance at your finished document before entering into it, as failure to include necessary portions may render it unenforceable.  (This sort of legal service is usually performed by many attorneys quite inexpensively.)

You will need to include the following provisions:

1.  List the full names of the lessor (the party who owns the vehicle) and the lessee (the party who is purchasing the vehicle);

2.  Identify the vehicle to be purchased. The make and model of the vehicle and the Vehicle Identification Number is required;

3.  Identify the length of the lease and establish the starting date of the lease.   Indicate that the vehicle must be delivered to lessee on that date; and

4.  Set forth the monthly lease payment and list the grand total to be paid.   Include mention of any down payment or deposit.

You must execute two (2) copies of the lease, one for each party.  Note:  A lease does not need to be notarized.