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Anatomy of a Loan Document

Here's what all the fine print means. Study it before you sign.

This story appears in the November 1997 issue of Business Start-Ups magazine.

Congratulations! Now that you've worked out a good business plan, overcome the challenge of putting yourself under the hot spotlights and filled out the small boxes on the bank-loan application, your small-business loan has been approved. The bank's loan officer calls you with the good news and arranges a meeting to "close" the loan. If you're like most entrepreneurs, you're ecstatic, and you happily agree to sign the papers to get the check. But what does all the legal jargon in that stack of papers really mean?

"A close look at those documents now could save you a lot of headaches later," cautions Mike Wellman, a CPA in Longview, Texas. "You're in a good bargaining position from the time of your first meeting until the time you submit your application. Your negotiating power dissipates substantially once the loan has been approved, and vanishes completely after you've signed the documents."

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