When borrowing money from a bank, it's important to make sure you look out for your business's best financial and legal interests. The following three borrower tips are taken from "Words to the Wary: 10 Rules to Remember When Borrowing Money From a Bank," a booklet published by Cappello & McCann, a Santa Barbara, California-based law firm that specializes in the field of lender liability.
1. Don't rely on what your banker tells you; get it in writing. A legal doctrine known as the "parol evidence rule" enables lenders to keep out of court any evidence about oral agreements they made with their borrowers if that evidence conflicts in any way with the written loan documents. This means that if your lender makes you an oral promise that is not reflected in the written loan documents or if your loan documents don't match exactly the agreement you've reached with your lender, then you may not testify about the oral promise or statements that were made to you.
2. Read every document before you sign it; if you have any questions, ask. In the past, courts were lenient about enforcing the strict terms of loan agreements. They understood that not everyone reads, let alone understands, every single word buried in the small print.
But those days are over. Courts are now strictly enforcing all the terms of the loan documents, regardless of how onerous they are, whether the borrower read them, or even whether or not the borrower speaks English. Borrowers must remember that virtually every clause in a loan document is there for one reason: To protect the lender. That is why it is so important to read and understand everything in your loan documents.
If your deed of trust says that your bank can foreclose if you are one day late in payment and that it can do this without providing you any notice of your default, that is obviously something you should know. If your loan officer assures you that the lender never enforces a troublesome provision, then ask that it be deleted. If your loan officer refuses, be prepared for the worst.
3. If your banker tells you something that sounds unusual, check it out. Borrowers must remember that lenders are selling, just like any other business. When lenders exaggerate or "puff" about what they can or will do, borrowers must take that with the same grain of salt that they do when dealing with any other salesperson.
If your loan officer says he or she can do something for you that doesn't sound realistic, try to confirm those statements with the officer's superior. Better yet, don't rely on those statements until whatever the officer promised actually occurs.
For a free copy of "Words to the Wary" in its entirety, send a SASE to A. Barry Cappello, Cappello & McCann, 831 State St., Santa Barbara, CA 93101.-Karin Moeller
Burg Communications, P.O. Box 7002, Jupiter, FL 33468-7002, (800) 726-3667.
Catholic University of America, Undergraduate Office for the School of Arts & Sciences, 107 McMahon Hall, Washington, DC 20064, (202) 319-5114.
Research Done Write!, 8726 S. Sepulveda Blvd., B-261/BS, Los Angeles, CA 90045-4082, (310) 568-9861.
Sakrison Communications, P.O. Box 405, Ripon, WI 54971, (414) 748-6125.
Vector Marketing, 2150 N. 170th St., #280, Seattle, WA 98133, (206) 364-9244.
WorkSmart, P.O. Box 800443, Aventura, FL 33280-0443, (305) 931-8562.