Business Loan Agreement Template | UCC Article 9 Ready

A business loan agreement is a bilateral contract in which a lender commits to advance a defined principal amount for a business, commercial, or investment purpose, and the borrower promises repayment on stated terms. That commercial purpose pulls the transaction out of federal consumer credit regulation: Regulation Z at 12 CFR 1026.3(a) exempts credit extended primarily for business or agricultural purposes from the Truth in Lending Act. No mandated disclosure boxes, no right of rescission, no standardized APR presentation. The parties write their own rules, which is why the drafting matters.

Lenders often treat the loan agreement and the promissory note as interchangeable. They are not. A promissory note is a one-sided instrument containing an unconditional promise to pay a fixed sum, and when it satisfies UCC §3-104 it becomes a negotiable instrument the holder can sell or pledge. A loan agreement is bilateral and far broader: conditions precedent, representations, covenants, reporting duties, events of default, remedies. Most commercial files contain both, plus a security agreement whenever collateral is pledged. Our library of US business contracts and incorporation documents covers the surrounding paperwork a lender usually asks to see.

Commercial lending in the United States rests on state contract law, state usury statutes, and one uniform statute adopted by every state. The federal layer is thin but real. Regulation B, the implementing rule of the Equal Credit Opportunity Act at 12 CFR 1002, reaches business credit and not only consumer credit: §1002.7(d) bars a lender from requiring a spouse's signature when the applicant qualifies alone, and §1002.9(a)(3) governs adverse action notices to business applicants.

Collateral falls under UCC Article 9. A security interest attaches under §9-203 only when value is given, the debtor has rights in the collateral, and the debtor authenticates a security agreement describing it. Perfection normally comes from filing a UCC-1 financing statement under §9-310 and §9-502, in the state where the debtor is located, which for a registered organization means its state of organization under §9-307. Priority runs first to file or perfect under §9-322, and a purchase money interest in equipment jumps the queue under §9-324 when the filing lands within twenty days of the debtor taking possession. Enforcement follows Part 6: repossession without breach of the peace under §9-609, commercially reasonable disposition under §9-610, notification under §9-611. The statutory text is published in the Cornell Legal Information Institute edition of UCC Article 9 on secured transactions. Several of those debtor protections cannot be waived in advance, a rule stated flatly in §9-602.

Usury remains state law, and a rate that is unremarkable in Delaware can void a note in New York. Ten states now impose consumer-style disclosure duties on non-bank commercial financing providers, often with registration attached. Convertible instruments follow another regime, and a convertible note agreement built for Regulation D offerings is the correct document when the debt is meant to become equity.

The most frequent use is the owner loan. A member advances working capital to his own company and never papers it, and two years later the IRS recharacterizes the advance as a capital contribution, denies the interest deduction, and treats repayments as distributions. A signed agreement bearing a rate at or above the applicable federal rate under IRC §7872 kills that argument before it starts. Seller financing comes next: the buyer pays part of the price at closing and signs a note for the balance secured by the acquired assets, which pairs with an asset or stock business purchase agreement as the governing sale document.

Equipment vendors use the agreement to create a purchase money security interest in the machine they just delivered, outranking an earlier blanket lien under §9-324. Bridge financing between friendly companies, revolving credit to a franchisee, and intercompany advances inside a group round out the list. That last one carries a trap: a rate below the applicable federal rate creates imputed interest on both sides. Another edge case is a loan funding tenant improvements, where fixtures attached to the landlord's building may sit outside the borrower's estate. Read the underlying commercial lease agreement for office, retail and industrial space before assuming the collateral is yours to take.

• The principal and advance mechanics state whether the loan funds in a single draw or in tranches, and tie each disbursement to conditions precedent: delivery of the security agreement, certified resolutions, evidence of insurance.
• The interest and computation clause fixes the rate, the day count convention, and whether interest accrues on a 360 or 365 day basis. It carries a default rate that steps up on an event of default and a usury savings clause reducing any charge above the maximum lawful rate in the governing state.
• The amortization schedule sets equal installments, an interest only period, or a balloon at maturity, with a payment waterfall directing funds first to costs, then accrued interest, then principal. Prepayment rights sit here.
• The grant of a security interest describes collateral by category rather than by the supergeneric formula, because §9-108(c) refuses a description reading "all the debtor's assets" inside a security agreement even though §9-504 permits it on the financing statement.
• The representations and covenants block confirms due organization, borrowing authority, absence of competing liens, and accuracy of the financials delivered. Negative covenants restrict further debt, additional liens, asset sales outside the ordinary course, and distributions.
• The events of default and acceleration clause lists payment default, covenant breach, misrepresentation, cross default, insolvency, and unauthorized change of control, each with its own notice and cure period. Acceleration is an election, not an automatic consequence.
• The remedies and guaranty provisions cover Article 9 enforcement, receivership, an optional guaranty with waiver of suretyship defenses, governing law, exclusive venue, and recovery of collection costs.

California applies a constitutional usury ceiling under Article XV, Section 1, set for business purpose loans at the higher of 10 percent per year or 5 points above the San Francisco Federal Reserve discount rate. The exemptions swallow much of the rule, since lenders licensed under the California Financing Law at Fin. Code §22000 et seq. fall outside the cap, and anyone lending commercially as a business generally needs that license. Non-bank providers also owe the disclosures required by Fin. Code §§22802 and 22803. Lending above the ceiling without a license is the fastest way to lose your interest.

New York runs a two tier system that trips up private lenders. Civil usury caps interest at 16 percent under Gen. Oblig. Law §5-501, and criminal usury begins above 25 percent under Penal Law §190.40. Corporate and LLC borrowers lose the civil defense under §5-521, yet the Court of Appeals held in Adar Bays, LLC v. GeneSYS ID, Inc. that they keep the criminal usury defense, and a note above that line can be void as to principal and interest alike. Loans of 250,000 dollars or more escape the civil cap; loans of 2.5 million dollars or more escape both.

Texas regulates commercial loans as well as consumer loans, which surprises out of state lenders. Chapter 306 of the Finance Code governs commercial credit, with ceilings computed under Chapter 303: 18 percent for ordinary commercial loans, 24 percent in defined circumstances, and 28 percent for a qualified commercial loan under §306.001(9). Usury is measured by spreading interest across the term using the actuarial method required by §306.004, and a loan agreement above 50,000 dollars must be written to be enforceable under Tex. Bus. & Com. Code §26.02.

Delaware is the jurisdiction of choice for larger commercial paper. 6 Del. C. §2301 sets a legal rate of 5 points above the Federal Reserve discount rate, but subsection (c) removes any interest limitation on loans above 100,000 dollars not secured by a mortgage on the borrower's principal residence. That freedom explains why negotiated credit agreements so often choose Delaware law even when neither party sits in the state. The clause will not defeat another state's criminal usury statute where that state has a materially greater interest.

Florida caps interest at 18 percent per year up to 500,000 dollars and at 25 percent above that figure under Fla. Stat. §687.03, with criminal usury beyond 25 percent under §687.071. Willful violation forfeits the interest; knowing violation can forfeit principal. Providers register with the Office of Financial Regulation under Fla. Stat. §§559.952 and following, and documentary stamp tax applies to written promises to pay delivered in the state.

You start by naming the parties exactly as they appear in the public organic record of their state of formation, because that name string controls the validity of every later filing. The form then asks whether the loan is secured, and choosing secured opens the collateral module where you select categories such as equipment, inventory, accounts, or general intangibles. Next comes the money: principal, funding date, rate, day count basis, repayment structure. Select equal amortization and the generator builds the payment table; select a balloon and it recalculates the maturity payment.

From there you set covenant intensity. A light package suits an owner loan, while quarterly financial statements and a debt service coverage ratio suit a third party lender. You choose notice and cure periods, decide whether a guaranty applies, then pick the governing state, which adjusts the usury savings language and the statutory citations throughout. The final step produces the set: loan agreement, promissory note, security agreement, UCC-1 information sheet.

The error that destroys more security interests than any other is the debtor name on the UCC-1. Section 9-503(a)(1) requires the exact name shown on the public organic record, and §9-506 voids a filing when the discrepancy is seriously misleading under the filing office search logic. "Acme Widgets" instead of "Acme Widgets, Inc." is enough to lose priority to a later lender or to a bankruptcy trustee. Close behind sits the lapsed financing statement. A UCC-1 dies five years after filing under §9-515, and the continuation window opens only in the six months before that anniversary. Miss it on a seven year amortization and the lender becomes unsecured, retroactively, as against purchasers for value.

Three drafting failures round out the list. Lenders copy the supergeneric collateral phrase from the financing statement into the security agreement, which §9-108(c) rejects, leaving nothing attached. They omit the usury savings clause, then set a default rate pushing the effective yield past the state ceiling. And they accelerate by phone without serving the notice and cure the contract requires, which hands the borrower a wrongful acceleration defense. Send acceleration in writing, exactly as the notice clause specifies, and follow it with a formal demand letter for payment drafted to breach of contract standards before moving on the collateral.