What owners tend to miss
Lenders to smaller companies commonly ask the owners for a personal guarantee, which can make the owner answerable for the whole debt if the business cannot pay. Many lenders also take a lien on all of the company's assets rather than on specific equipment, and that blanket lien can make it harder to borrow from anyone else later. Government-backed loan programs carry their own conditions and paperwork on top of the lender's documents. Some products marketed as business funding, such as merchant cash advances, are written as purchases of future receivables rather than loans, and whether a particular agreement is really a loan has been heavily litigated in New York. New York has also limited how lenders can use confessions of judgment, but owners still see them in funding paperwork and should not sign one without review.
Preparing before you sign
Ask for the full set of documents in advance, including any guaranty, security agreement, and side letters, rather than a summary. Read how the payment amount is calculated, what fees apply on prepayment or default, and whether the lender can debit your accounts directly. Check whether your existing lenders, landlord, or major contracts restrict new debt or new liens. Keep a clear record of what the lender promised in conversations, because the written agreement usually says those promises do not count unless they appear in it. If more than one owner is signing, each should understand what he or she is personally agreeing to.
What a review usually covers
We review the agreement from the owner's position: the scope and limits of any personal guaranty, which assets are pledged, how default is defined, and what the lender may do after a default. We look at whether a product described as a loan is really structured that way, since that affects which rules apply. If the business is already behind on payments, we look at the agreement, any guaranty, and the lender's notices, and discuss workout options before the lender moves to collect. Signing quickly under pressure is common, but a short review often identifies terms that can still be adjusted.
