Negotiating the Terms of Your Loan Agreement in Pennsylvania
Taking out a personal or a business loan is one of scarier things in life, and it isn’t everyone’s go-to option. However, if you strapped for cash and really need a financial boost, badly, you might have to go against your better judgment and beliefs by asking for a loan, either from a friend or a financial/ lending institution. But making this decision doesn’t mean that you have to sign up for whatever terms the lender recommends to you. You might be feeling intimidated, but the draft loan agreement presented by the lender hardly ever comes to the table on the Take It or Leave It Terms, and if the first draft is on such strict terms, then you’d want to continue shopping – there are many lenders that you could work with.
The reason for this sternness has to do with the fact that loan agreement terms are negotiable, something most of us fail to consider; then there’s the fact that this agreement is legally binding, which means that the moment you sign this agreement, you won’t be able to go back on your words. And even if you do, you will suffer the consequences. Lastly, the lender always looks out for itself, and they will look for all the possible ways to make the most out of the loan and its terms for its benefit. However, when you negotiate, it means that you can avoid some of the prohibitive terms of the agreement, and you might also access a loan that is slightly more affordable.
To negotiate the terms of the agreement, you don’t have to wait for the first loan proposal. The first thing that you need to do is to download the free Pennsylvania loan agreement form online. This form is a complete legal loan agreement template that outlines the sections and terms you should expect from the loan contract. This draft loan agreement form allows you to familiarize yourself with everything else that will come with the loan offer presented to you by the lender.
An understanding of the loan’s interest rates is also important. Essentially, one of the most important and slightly negotiable terms of your loan agreement in Pennsylvania is the interest rate, and an understanding of the terms of the loan interest is important.
Pennsylvania Usury Laws
If this is the first time you are applying for a hefty loan or even a smaller one, you need to know that the state has out in place usury laws. These laws provide that the maximum legal interest rate charged by lenders shall not exceed 6%. And if a lender defaults or contravenes these terms, the borrower will recover as much as three times the excess loan amount. The lender will also pay the attorney fees, and also charged with a 3rd-degree misdemeanor. For legal/ court judgments, the interest charged must be the lawful interest rate.
These usury laws do not, however, apply to the Veteran’s Administration, Federal Housing Administration, as well as unsecured and non-collateralized loans over $35,000, and business loans exceeding $10,000. The exceptions also extend to loan obligations where the borrower is obligated to pay a sum of money whose bona fide amount exceeds $50,000.
Negotiating a Loan Agreement
Before you kick off the negotiations, it is an important thing to know what you can negotiate. While the terms agreed on at the time you sign the agreement will essentially increase and maximize the chances of the lender getting their money back, you still get more reasonable terms when you negotiate. The negotiation will also allow for the expunging of boilerplate terms or the clarification of the boilerplate language used.
Repayment terms, Interest, and Repayment Schedules
The only thing that might be of interest to you in the loan agreement might be the loan amount, but you need to concern yourself with and negotiate the interest rate and the draft repayment schedule presented. If you are unsure of where to start from, think about things like your bargaining power, your financial capability, as well as your revenue projections. Awareness of the state’s usury laws is always a good place to start. At the end of the day, you need to negotiate the terms of the agreement, while keeping in mind that the repayment schedule needs to be very flexible and to avoid the risk of default.
To avoid defaulting on the loan, you need to review the default terms offered, and also consider the favorability of the terms offered, with regards to your ability to repay the loan easily and run business operations smoothly.
So, are you to provide the lender with periodic financial statements? Do you need to obtain consent from the credit to take some actions such as selling assets or hiring new high-level employees?
You also need to negotiate for the softening of the default provisions/ covenants using strategies such as the addition of materiality and knowledge qualifiers, the inclusion of more generous cure periods in case of a breach, insisting on the cessation of penalties after waiving or curing of underlying default. You could also ask for the incorporation of a maximum/ minimum dollar limit.
Essentially, you need to do all it takes to ensure reasonable handling of a default, to lower the risk of a monumental business loss.
Whatever you list as collateral for the loan, ensure that it’s something you would be willing to lose if you are unable to repay the loan. While the lender is only confident in offering a loan of a certain amount depending on your ability to repay the loan, you should not risk all your shares in your business, especially if you can avoid it. You don’t want to relinquish control over your company.
Finally, ensure that the responsibilities of the parties to the agreement are reasonable and clearly spelled out.
To get started with loan agreements in Pittsburg, Philadelphia, Harrisburg, Erie, Scranton, Lancaster, or any other city in Pennsylvania, download our free loan agreement form here today.