Protect Thyself

Don’t worry about it, it’s no big deal. Those are famous last words in any business negotiations, particularly coming from a lender to a borrower (or vice versa, to be fair). A savvy borrower who understands the terms that the lender wants in a loan agreement, must be ready to make some hard choices.

Borrowers must try to imagine the worst case scenario in their business ahead and reflect on how the lender’s terms will impact the business. Sometimes there can be ways to give the lender adequate protection without the full- scale surrender that is often described in the loan agreement.

Business owners must consider these terms and seek to forge an agreement that provides sound options to ensure the business can avoid being disenfranchised by an insecure lender to the detriment of its other creditors, equity, and survival.

The borrower cannot afford to unwittingly put the entire company at the total mercy of a lender. The lender is usually not the only creditor of business, and often not even providing a majority of the credit. The lender’s credit is important, but is usually secured, which provides at least two ways to get out of the deal.

Protect the business. Demand, argue, and hold out for changes in the terms that can compromise the continuation of the business at the whim of the lender. The lender can discuss these terms with you in good faith up front, or if they remain unreasonable, may be forced to plead before a bankruptcy court later. Convince the lender that you are much more reasonable and less expensive.

Sometimes you will be forced to sign off on terms that are ripe to be abused. The need for capital may require you to accept terms that are risky. Be diligent about observing these terms, and know that you can’t permit the lender to abuse your rights or investment with shoddy, haphazard enforcement of their terms.

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