Sign loan consent agreement
so you received your Eid alone offer congratulations but do you know what's actually in the loan documents do you know what you're signing up for in this video I'm gonna go through step by step all the loan documents that you receive from the SBA the promissory note the loan agreement and the other attachments I'm gonna explain what's in them and what you should be concerned about coming up [Music] hey guys if we're just meeting my name is Vitaly Volkov I'm a practicing attorney an active real estate investor and a part owner of a real estate brokerage in upstate New York on this channel I discuss relevant legal concepts as well as best strategies and tips with real estate investing and personal finance if you're new to the channel consider subscribing and hitting the notification bell so that YouTube notifies you of all my future content if you enjoy the content in this video hit the like button and comment down below as always whenever I'm discussing legal concepts just remember nothing that I say should be construed as legal advice I provide this information for educational and entertainment purposes only and you should always consult with your own attorney and your own advisor before making any legal or financial decisions last but not least the views and opinions I express in this video are my own alone and don't necessarily reflect those in my law firm or any of my business partners alright guys so I got my setup here I got my mic laptop I'm gonna share my screen with you we're gonna look at the documents together and go through them step by step there's gonna be a lot of legalese this video is likely to get long so I appreciate your patience I appreciate you sticking around if you're gonna end up sticking around to the end of the video I appreciate it I think if you receive these documents you're gonna want to know what's in them and I'm gonna try to provide you with that information here all right so the first document we're gonna look at is the loan authorization and agreement laa and this first page is just talking about you signing the agreement and what your signature signifies if you do sign it and basically it says that your signature represents your agreement to comply with the terms and conditions of the loan and that is everything that's in this loan document you're agreeing to whether or not you read it whether or not you paid attention you're gonna be held responsible for whatever terms are in here so again it's really important that you review the document that you probably should talk to an attorney about this again don't take my word for it this is my interpretation I am an attorney but I'm not your attorney so watch this video take notes take the information and then go and talk to your attorney before signing this agreement and if you already sign it well at least you'll know what you signed up for so you will see that I blacked out some of the personal information that appears on these documents basically for just privacy reasons one thing that I substituted here is the loan amount and again I'm not trying to disclose what our loan amount was but I'm taking a representative loan amount and I made a $30,000 for the purpose of this video and I also put in a monthly payment amount which I believe would be listed on your loan documents if your loan documents were offering you $30,000 so it's $30,000 which is your total loan amount and $147 per month as your monthly payment so the first part here explains who the parties are that the SBA is the lender that your self or your company is the borrower and it talks about how much again thirty thousand in our case and that the payments will be installment payments including principal and interest of one hundred and forty-seven dollars monthly which will begin 12 months from the date of the promissory note the balance of principal and interest will be payable 30 years from the date of the promissory note so as it reads you don't have to make any payments for the first 12 months and the balance of the promissory note will be paid 30 years from the date of its issuance so essentially you have 30 years to repay the loan but the payments don't begin until year two and then you will have 29 years to pay the balance of the loan with regard to interest it says the interest will accrue at the rate of 3.75 percent per annum and will accrue only on funds actually advanced from the dates of each advance I believe that this is the standard that they've been given to everybody but if anyone has received a different interest rate definitely drop a comment down below and let us know I think 3.75 percent has been the standard pretty much across the board payment terms says that each payment will be applied first to interest accrued to the date of receipt of each payment and the balance if any will be applied to principal each payment will be made when do even if at the time the full amount of the loan has not yet been advanced or the authorized amount of the loan has been reduced so before I go on to any of the other terms I just want to point one thing out here the one question that come as you read this is what happens during that 12-month period with regard to interest does interest accrue while my loan is in deferment and I'm not making any payments for the first 12 months and the answer to that pretty clearly as yes it does accrue the reason I know that is because if you take the $30,000 loan amount and you run the calculation through an amortization calculator like the one that Bank Rate has so if we go to Bank rate and I already did this here and we have a $30,000 loan that spread out over 30 years so that's 360 payments at 3.75 percent interest your monthly payment would be at 138.236.128.7 hd480 cc1 at that 12 months loan interest is accruing 3.75 percent so if we take $30,000 and we multiply it by one point zero three seven five which would be the percentage over that time period what we end up with is a balance of thirty one thousand one hundred five dollars and that's the amount that you will owe to the SBA in month 13 after the first 12-month period has ended and you've begun making your payments the first time you make a payment you'll be making a payment toward a balance that has grown to thirty one thousand one hundred twenty-five dollars and if you assume that that's the case and you do the calculation that way on Bank rate we put in thirty one thousand one hundred twenty-five dollars over 29 years because that's how long there will be left after you've deferred it for one year on your repayment at the same interest rate 3.75 percent we end up with a monthly payment amount of one hundred forty six dollars and 84 cents and it looks like the SBA what it's doing is basically rounding that number up to one hundred and forty seven dollars and that's how we get there so as I read this to me it seems anyway and if anyone has a different information that they received on their loan agreement definitely let me know or my math is somehow wrong here definitely let me know that as well but as I'm reading this they're basically capitalizing the interest that you're deferring during the first year and adding it to the loan and then you're paying interest on that interest over the life of the loan so you know it's a 3.75 percent so it's not that big of a deal it's you know barely over inflation over the period of time so it's not a deal breaker but it's something that you should be aware of that you are paying interest if you if you decide to not make any payments for the first 12 months you're going to be paying interest during that time period and that interest is likely to cost you more interest as it gets capitalized in the loan so I just wanted to point that out so that it's clear when you're looking at those documents you should pay attention to that all right so let's move on the next paragraph here talks about collateral and this is a big one it says that for loans of greater than $25,000 borrower hereby grants the SBA the secured party here under a continuing security interest in and to any and all collateral as described herein to secure payment and performance of all debts liabilities and obligations of borrower to the SBA hereunder without limitation including but not limited to all interests other fees and expenses all here under called obligations I know it's a lot of legalese and a lot of mumbo-jumbo so let me try to explain what they're saying here they're basically saying that if if you borrow more than $25,000 from the SBA they will take a security interest essentially create a lien against a lot of different things and they describe those things below and those things are things that are owned by the business and it includes the following property that the borrower now owns or shall acquire in the future or create all tangible and intangible personal property including but not limited to inventory equipment instruments including promissory notes chattel paper including tangible chattel type paper and electronic chattel paper documents letters of credit rights accounts including healthcare insurance receivables and credit card receivables deposit accounts commercial tort claims general intangibles including payment intangibles and software and as extracted collateral as such terms may from time to time be defined in the Uniform Commercial Code the security interest borrower grants includes all accessions attachments accessories parts supplies and replacements for the collateral all products proceeds and collections thereof and all records and data relating thereto basically this says that the SBA gets a lien against all of the personal assets that the business owns and that's not just furniture equipment inventory those things it's also agreements contracts accounts receivables accounts like bank accounts all that is now lien by the SBA so if your business fails to make the required payments then the SBA can come in and foreclose on this UCC lien and take away all the assets that your business owns this gets really blurry if you are a sole proprietor and your business assets are also your personal assets and it could get really messy and really ugly so this is something that you should definitely pay attention to and keep in mind that if you're borrowing over $25,000 you may be subject to this type of a lien which gets recorded with the Department of State or the Secretary of State in a state that you're doing business in and the SBA has the power to take all of that stuff away from you if you default on this loan and by the way guys I just want to take a moment right now if you're enjoying this video if you're getting value from it please do me a favor and hit the like button it definitely helps out with the YouTube algorithm helps send this video out to additional people so that they get a chance to see what I'm talking about and hopefully benefits them in some way additionally I also want to say that if you're a business owner and you need representation or legal assistance with anything relating whether it's to a IDL grants loans or any other subjects employment law contracts entity formation government relations litigation any of that we provide those services at my law firm to businesses we're located in Albany New York we have a regional presence so even if you are not necessarily in New York we may be able to assist you with that I have my contact information down below in the description feel free to browse that if you want to reach out to me my email address and my business phone number are both listed there so feel free to reach out if it's not something that I can help you with and you know I admit that my expertise and knowledge is limited to certain areas we have 75 attorneys in my law firm who are more than capable and more than happy to assist you in any business legal matters that you might have so don't be shy feel free to reach out and if you have questions comment down below in this video and we're here to provide you with assistance if you need it moving on so requirements relative to collateral borrower will not sell or transfer any collateral except normal inventory turnover in the ordinary course of business described in the collateral paragraph Europe without the prior written consent of the SBA borrower will neither seek nor accept future advances under any superior liens on the collateral securing this loan without the prior written consent of the SBA this means that if you own a truck and your independent contractor for your business and you decide that you want to sell your truck that the SBA has a lien against you can't do that without getting the permission from the SBA I mean you can do that but you're risking that you will be in violation of the terms of this loan and create some other problems for you so this is pretty onerous I think this is a pretty onerous provision and in this loan agreement that SBA can just prohibit you from selling any of your stuff that belongs to your business or belongs to you individually as a sole proprietor without their say-so additionally this provision also says that you can't go out and get other liens or borrow against your equipment and inventory or other collateral assets without their written permission the SBA wants to be involved in that process if you do it if you want to do it in compliance with this agreement the next paragraph talks about the use of loan proceeds and this is actually a very very big and important paragraph but it there's not a whole lot of information that's in this paragraph it's very sparse and uses a term which is not defined anywhere in it so it says borrower will use all the proceeds of this loan solely as working capital to alleviate economic injury caused by disaster occurring in the month of January 31st 2020 and continuing thereafter and to pay a Uniform Commercial Code UCC lien filing fees and a third party UCC handling charge of $100 which will be deducted from the loan amount stated above so the definition of the term working capital is not anywhere in this agreement at all and the SBA does have prior pre-existing regulations that talked about the use of Eid L funds and we can take a look at those for some additional guidance but even that doesn't provide us with a whole lot so I'm going to show you guys what the existing pre-existing prior to the Carrey's Act regulations said about the use of Eid alone funds so this is the section of the Code of Federal Regulations section 123 point 303 and title how can my business spend my economic injury disaster loan and the first paragraph basically answers that question it says you can only use the loan proceeds for working capital necessary to carry your concern until resumption of normal operations and for expenditures necessary to alleviate the specific economic injury but not to exceed that which the business could have provided had the injury not occurred this is not very helpful either it doesn't say what working capital is exactly it seems to suggest that you can do things you can use the money toward operational expenses that you would have had day-to-day but you shouldn't be able to maybe spend the money on expanding your business or you know setting up a new location or doing anything that would be involved in expanding your business and it's only supposed to be for expenses that are designed to alleviate the specific economic injury now the cares Act does also have some provisions talking about how funds are supposed to be used and I'm going to show you guys those here as well so section 11 efore of the cares Act talks about the use of the grant portion of the e IDL funds so that section says that in advance provided under this subsection may be used to address any allowable purpose for a loan made under Section 7 B 2 all the small business Act including providing paid sick leave to employees unable to work due to the direct effect of the pandemic maintaining payroll to retain employees during business disruptions or substantial slowdowns meeting increased costs to obtain materials unavailable from the applicants original source due to interrupted supply chains making rent or mortgage payments and repaying obligations that cannot be met due to revenue losses now again this is talking about the grant portion not the loan portion so does not seem to directly apply to loans but grants are supposed to be in advance against the loans meaning that the grant itself is technically part of the full package that someone is going to get under this provision of the cares Act so in theory you can interpret these uses as examples of uses that would be allowed for the eid loans but the loan agreement itself doesn't really address this it does not specify or spell out the different uses that you can use the money for all it says is working capital and so that prompted me to go and look to see if there is a legal definition of what working capital is and there is a legal dictionary that lawyers turn to when they're trying to find out what something means especially if it's not defined in the statute or the law that they're looking at and so I went and I looked at the law dictionary which is featuring Black's Law Dictionary free online legal dictionary which is second edition and there a definition of working capital is the short term operating resources of a company again not very descriptive and not entirely helpful and so it also says refer to loan gross working and networking campus so I went and looked at what a working capital loan is and it says that it's a loan that is used to buy assets in the short term it may be secured or unsecured so again not a whole lot of help here but the bottom line is the way I'm reading this is that you shouldn't be using it for anything that would be involved with expanding your business you should be using it for things that are regular day to day you know month to month type of expenses you shouldn't try to do anything unusual with this money because you never know how the SBA is going to interpret it and in fact the next provision of this loan agreement talks about the requirements for use of loan proceeds and the receipts you have to keep and the records you have to keep and provide to the SBA so it says that the borrower will obtain an itemized receipts paid receipts paid invoices or canceled checks and contracts for all funds spent and retain these receipts for three years from the date of the final disbursement prior to each subsequent disbursement if any and in our case I think there only be one disbursement because I think the loans are being paid out in one lump sum and whenever requested by SBA borrower will submit to SBA such itemization together with copies of the receipts so anytime the SBA decides that they want to get receipts from you and your contracts and your documents and your records do you better be ready to provide them and in the worst case you should try to keep them for at least three years from the date you use the proceeds of the SBA loans for whatever expenses you decide to spend it on so the best practice here the best advice is to keep very meticulous records I think that everyone should put this money in a separate bank account and not co-mingle it with other money so that there's no confusion and then just keep very very clear records of what you use the money for now the next paragraph in the same section talks about how the borrower is prohibited from using the loan funds for the purpose of relocating their business without the permission of the SBA and the way it reads is basically the intent here I think is to encourage businesses to stay put stay where they are and to continue to recover with the community that has been impacted by a disaster and this is a relic of the old format of the loans of the e IDL loans which were primarily used for situations where you have regional disasters so hurricanes floods earthquakes fires things like that and those would typically be contained to a specific area and the SBA is intent here I think was to keep businesses in place and continue to provide the community with the value of that business being in place it does not seem as applicable to our current disaster which is national and scope the President of the United States has declared a state of emergency for the entire country and every single governor pretty much has declared a state of emergency for each state so it does not seem to make sense to include this type of limitation in the agreement where it doesn't matter where you go it doesn't matter if the business travels or moves from one state to another the disaster is still in that state they move to you know the both states are in a disaster area so just seems a little weird I thought I'd mention it but basically you can't relocate your business if you wanted to without first checking in with the SBA then they also say how you should to the extent feasible perched only american-made equipment and products with the proceeds of this loan it also talks about how borrowers can request a loan increase for additional disaster related damages as soon as possible and it also talks about how borrowers may have the ability to request additional funds related to the disaster and again I think this is another relic of the former EIU loan format where a business could request additional funds I don't think that's going to happen in this case not unless Congress earmarks additional funds for the purpose of providing a IDL grants or eid loans at this point it doesn't look like that's gonna happen and in fact I don't think it would be right for the SBA to allow businesses that have already received some funds to ask for more funds at the time when a bunch of other businesses haven't received anything from them so I don't see that happening I don't think they're gonna give a second bite at the Apple to any of the businesses that have already received funds when there are others that haven't received anything at all next section talks about the deadline for return of loan closing documents again this seems to be a leftover because when you're signing this loan agreement you're also signing the promissory note you're also signing all the other documents together all in one shot through DocuSign so I don't think that that's really applicable and they give you a different timeline when they email you for how long you have to sign these documents so I don't think this really applies but again it's in the agreement so they're being contradictory is basically my point the next section is very interesting this is where they talk about compensation from other sources it says that eligibility for this disaster loan is limited to disaster losses that are not compensated by other sources other sources include but are not limited to proceeds of policies of insurance indemnification z' grants or other reimbursement including loans from government agencies of private organizations claims for civil liability against other individuals organizations or governmental entities and salvage including any sale or reuse of items of damaged property borrower will promptly notify the SBA of the existence and status of any claim or application for such other compensation and of the receipt of any such compensation and borrower will promptly submit the proceeds of same not exceeding the outside outstanding balance of this loan to SBA borrow are hereby assigns to SBA the proceeds of any such compensation from other sources and authorizes the payer of saying to deliver such proceeds to the SBA at such time in place as SBA shall designate SBA will in its sole discretion determine whether any such compensation from other sources is a duplication of benefits SBA will use the proceeds of any such duplication to reduce the outstanding balance of this loan and borrower agrees but such proceeds will now be applied in lieu of scheduled payments a lot of stuff there but what they're saying is basically if you're gonna get money from another source we get to take that money so if you get money from your state government through a grant or a loan because of the disaster that you've suffered as a business the SBA will first require you to notify them of this grant or loan that you're getting and second they have the ability to then go to that government agency and say no no no don't give this money to this recipient to this business you give it to us and we'll just pay down the loan that they owe us so that's what this section is all about so keep that in mind be aware of this if again if you don't comply with what they're telling you here if you don't let the SBA know that you're getting funds from somewhere else then they may deem you in violation in the fault of this loan and they may impose penalties that we'll talk about in a little bit and the other thing I find very interesting here is that the SBA says that it will determine in its sole discretion as to whether or not the funds you're going to receive from somewhere else are actually duplicative of the funds that they gave you and they're gonna be the deciders of whether or not that's duplication and they're gonna decide whether or not to take that money for themselves and pay off this loan the next paragraph talks about the duty to maintain hazard insurance on the collateral to which the SBA now has a lien so I'm not gonna read it all in detail but basically what this section is saying is that if you're gonna borrow money and we're gonna have liens against your collateral you need to make sure you get insurance to ensure that property and it says that you're supposed to get insurance within 12 months and that insurance is supposed to cover up to 80 percent at minimum of the value of your assets needless to say this is an additional headache an additional administrative expense and if you don't follow through and do what they're telling you to do and you don't get insurance it says that borrower may not be eligible for either any future disaster assistance or SBA financial assistance if this insurance is not maintained as stipulated here in throughout the entire term of the loan it doesn't say that if you violate this provision they'll call the loan and get the money back from you but who knows maybe they could try so again another thing to keep in mind as a requirement as kind of an onerous requirement in this agreement next section talks about your requirement to maintain books and records and there are quite a few things here as well you're supposed to keep books and records for the most recent five years until three years after the date of maturity including extensions of the date or the date that this loan is paid in full so basically you need to have a five year look-back period for all of your records and you need to maintain it for an additional three years after you either pay off the loan or until the loan term expires so if the loan term is 30 years and you take that long to make the payments to pay it off then you're going to need to maintain records up until year 33 from the date that you actually got the loan it also says that the SBA can require inspections and audits of any books and records and that it'll be done at your cost so if they hire financial forensic analyst or accountants or anybody like that to conduct an audit of your books and records you're gonna be on the hook for paying those costs and those costs might not be cheap depending on how much effort in time they spend reviewing your records additionally this section requires you the borrower to provide not later than three months following the expiration of your fiscal year and in such form as SBA may require your financial statements it doesn't say for which year but I'm interpreting this as being required every year meaning that at the end of your fiscal year within three months of the end of your fiscal year the SBA requires you to provide them with all of your financial statements and again this is an additional administrative expense and administrative headache if your records or financial statements are not in the [ __ ] in the shape of being ready to be reviewed by the SBA you're gonna have to pay someone or you can have to spend your own time and effort to create those financial statements and provide them to the SBA and if the SBA so requires they may actually ask you to pay an accountant to provide an accountants review and report of those financial statements again it doesn't say that this would be required for every time you submit information to the SBA but it just gives the SBA the option to make that a requirement and it's something that you're gonna have to do and then have to pay for out of your own funds moving on to a section called limits on distribution of assets and this is actually another big section which only has a few lines related to it here in this agreement it says borrower will not without the prior written consent of the SBA make any distribution of borrower's assets or give any preferential treatment make any advance directly or indirectly by way of loan gift bonus or otherwise to any owner or partner or any of its employees or to any company directly or indirectly controlling or affiliated with or controlled by borrower or any other company and this actually seems to be in somewhat of a contradiction with the provision that we talked about with regard to working capital and the provision in the Kerr's Act with regard to employees at least it says that you can't pay your employees out of these funds in this paragraph without getting the written consent from the SBA but the working capital and the cares act seems to say that you could do that and not have to get any consent or permission from the SBA so in that sense it seems a little bit contradictory but if you're signing this agreement probably want to make sure that you're following what the agreement says and so here you're basically unable to make any loans gifts bonuses give any payments distributions to any owners partners or any other companies you're affiliated with so it's a restriction on what you can do with your loan proceeds Equal Opportunity requirements section if you have employees or you intend to have employees you're going to be required to post an equal-opportunity poster which they provide you with this is not that big of a deal you're required to comply with Equal Opportunity on the federal and state laws anyway so no issue there and then with regard to lobbying activities if you plan to do any lobbying you have to comply with that and they provide you with an attachment to the loan agreement that you would have to certify and fill out and then there are a bunch of certifications that they require that you attest to I'm just going to touch on a couple of them the first one is basically that there has been no substantial adverse change in the borrower's financial condition since the date of the application for this loan and they list examples of adverse changes which include but are not limited to judgment liens tax liens mechanic's liens bankruptcy financial reverses arrest or conviction of a felony etc the other thing here is that you're supposed to attest that you haven't paid any fees directly and or indirectly to any representative attorney account and etc for services provided or to be provided in connection with applying for or closing for this loan other than those reported on SBA form five business disaster loan application SBA Form 3501 economic injury disaster loan application or sba form 159 compensation agreement and I have no idea what forms they're talking about here honestly in the sense that from what I know people didn't use these forms we've did everyone was applied for a loan under this program ever since they issued the streamline form application was that four-page form where people click the couple of boxes filled in some information and there's nothing in their spire as far as I remember that talked about paying anyone to prepare loan applications or helping you with closing of the loan or any of this stuff so it's a little strange that they have that in here it's possible that again that this is a relic of the old format of these loans and probably the loans that the SBA provided prior to this disaster for other disasters did require that applicants fill out these different forms but I don't think that's the case here so it's really unclear to me what happens if you go and contact an attorney and you say hey can you review this contract for me and give me an opinion on what it says and what should I be looking out for if you pay an attorney for that are you violating this provision it seems a little weird that they would require you to that they would prohibit you from doing that essentially and then one last thing I'll mention in this section is the reference to child support payments it says that neither the borrower nor if the borrower is a business any principal who owns at least 50% of the borrower is delinquent more than 60 days under the terms of any administrative order court order or repayment agreement that requires payment of child support so if you're behind on child support by more than 60 days subject to this provision you cannot obtain this long and if you attest that you're not behind but you actually are you are violating the loan provisions and you could be in a lot of trouble if that's the case all right here we get to the fun stuff and this is the civil and criminal penalties that accompany violations of this loan this section reads whoever wrongfully miss applies the proceeds of an SBA disaster loan shall be civilly liable to the administrator in an amount equal to one and one-half times the original principal amount of the loan in addition any false statement or misrepresentation to sba may result in criminal civil or administrative sanctions including but not limited to fines imprisonment or both then it goes on to say that they could get treble damages and civil penalties under the False Claims Act double damages and civil penalties under the program fraud civil remedies Act and suspension and or debarment from all federal procurement and non procurement transactions statutory fines may increase if amended by the federal civil penalties inflation adjustment Act improvements Act of 2015 so if you violate these provisions not only we have to pay back the loan proceeds which you may have spent for your business but you may actually have to pay back 50 percent more two times more three times more than what you got so if you've got a thirty thousand dollar loan you may be in the hole for ninety thousand dollars or a hundred and twenty thousand dollars if you violated any of these provisions and any of these laws so be very very careful with what you're doing with these proceeds how you're representing what you're doing what you're saying to the SBA all those things I think it's important that you're on top of this provision and that's why I think you should be talking to your attorney before you sign up for this or before you start using the funds or while you're while you're using the funds you should be checking in with them to make sure that the uses that you are trying to put the funds to are actually permissible and the next section talks about what happens if you violate this loan authorization and agreement and basically it says that the SBA can call the entire loan due and payable immediately then it talks about different ways that they can disperse it to you at this point from what I'm hearing from everybody is that the SBA simply deposits it directly into your bank account all in one lump sum but this part of the agreement would allow them to make the loan disbursement to you in increments if they wanted to and it also says that the SBA could withhold disbursement if they feel that there has been some kind of adverse change in your financial condition or other material fact that was misrepresented by you to the SBA another section here talks about the parties that are affected by this loan and it basically says that the loan provisions will be binding not just on you your current business entity but any of your successors or assigns meaning that if you change your business structure if you change your name if you add members to your LLC if it's an LLC or add owners or any of that stuff it will be binding on all of them so that's the loan authorization and agreement document the next thing that we have is certification regarding lobbying which you know if you're not going to do any lobbying shouldn't be much of a big deal then we move on to some additional documents to talk about Equal Employment Opportunity as mentioned this is the poster that they want you to post if you have employees they provided in several languages and then we get to the promissory note and this is the cover page for the promissory note which just notifies you that you should be reading this carefully and that your signature means that you're greeting with all the terms in the promissory note and the promissory note is building upon what was said in the loan authorization an agreement document and again it recites the amounts it recites your interest rate it talks about collateral again describing what that is talks about payment terms and this you know provides some more detail on those and then it describes several instances of what would constitute a default under this promissory note and you just want to highlight a few of them here so one of them is if you sell or otherwise transfer or you do not preserve or account to S be a satisfaction for any of the collateral or its proceeds you're in violation you're in default under this promissory note another one is if you fail to pay any taxes when do so this doesn't even apply to the SBA it's not even anything that you're paying the SBA or sending to the SBA this is just simply you fail to pay your taxes and again if you're a sole proprietor you may you know your tax return is your your personal tax return and if you fail to pay under the personal under your personal tax return this read literally would mean that you're in violation of your promissory note and the SBA could in theory call the entire balance do will they do that you know will they have the capacity to do that as I said there are five million applicants that have applied and they're probably getting these loans I don't think so I don't know I I don't know if they will or not but again it's a possibility that you can't discount and it's another requirement you know that it's placed on you as the borrower another one here is has any adverse change in financial condition or business operation that the SBA believes may materially affect borrower's ability to pay this note so it's not even anything that actually affects your condition your ability to repay the note it's just something that the SBA believes may affect your ability again giving them all kinds of discretion to decide what it is that they will say you're violating and what it is that they will say causes you to default on this loan and possibly get you know make them allow them to ask for money back so another really really onerous provision in my opinion reorganizes merges consolidates or otherwise changes ownership or business structure without SBA's prior written consent this is something I just mentioned a moment ago so if you decide to change the name of your business or you decide that you want to add some new owners or you want to sell your business to somebody or create an affiliation with another business all that needs to be run by the SBA and approved by the SBA through whatever red tape they got through however long it's going to take to get through that process you're gonna have to do that or else your risk being in default of this loan becomes the subject of a civil or criminal action that SBA believes may materially affect borrower's ability to pay thus note so if someone Sue's you for whatever reason whether it's frivolous or not frivolous whether it's minor or or a big lawsuit the SBA could determine that in their discretion this materially affects your ability to repay the fact of a lawsuit not the fact that you lost a judgment but the fact that there's been a civil you're the subject of a civil or criminal action and that again could result in the SBA calling the entire loan and declaring you in default and the SBA's rights with regard to a default are pretty extensive as well they can require immediate payment as I already mentioned they can collect all amounts owing from any borrower or guarantor if any they can file a suit and obtain a judgment they can take possession of your collateral your assets they can sell lease or otherwise dispose of any collateral at public or private sale with or without advertisement and they can do all of that without notice or demand and without giving up any of their other rights that they may otherwise have and there are a couple of things also want to point out under the general provisions paragraph the first thing it says is that all individuals and entities signing this note are jointly and severally liable so if you had multiple individuals or multiple businesses that were signing this promissory note this would mean that each and every one of them is 100% liable for the full loan amount so if you had two people that are part of a business and both of them ended up signing this promissory note each one of them is responsible for 100% of the balance meaning that if one person later down the line is has filed bankruptcy and has no assets against which the SBA can proceed then the SBA can still go after the other person and not just get 50% of what's owed to the SBA but get a hundred percent from that person the next one that I highlighted here that I think is interesting and important is that the borrower not use an oral statement of SBA to contradict or alter the written terms of this note and this is actually pretty important with regard to what you're seeing on YouTube right now there are a lot of videos where guys call the SBA and they talk to raps and they talk to tier 1 reps and then they talk to tier 2 reps and they're recording what they're saying and then they're playing it back and they're basically passing that off as this is the gospel or this is what the SBA is saying about a particular topic relating to e ideal loans and right here right in the snow it basically says that none of that stuff is gonna hold up in court so no matter what the SBA rep told you a tier 2 rep or tier 3 rep whoever doesn't matter what they say to you because it's not gonna hold up in court and it's not going to be binding on the SBA because of this exact provision anything that's not written is not binding on the SBA pursuant to this agreement last but not least in this paragraph it also talks about the borrower waiving any defenses based upon SBA failure to obtain or perfect or follow the procedures with regard to any guarantees or with regard to any liens to collateral so as I mentioned in the beginning of this video in order for the SBA to obtain a lien against your collateral against your assets they actually have to file a lien with the secretary of state or the Department of State where you're doing business this says that if they fail to do that there's an oversight they forget or they're you know employees fail to do it that does not alleviate and does not allow you to raise that as a defense in any subsequent litigation whether trying to take your stuff so they're just protecting themselves here they're basically saying that we can mess up we might fail to file something or follow the proper procedures but you're agreeing through this agreement by signing on the dotted line that you can't raise this argument in court subsequently again another very very onerous provision and this provision as well as many many others that I've touched on is entirely one-sided in favor of the sba now maybe it's fair maybe it's okay you know the government is issuing a lot of money and it's taxpayer money that needs to be secured and I get all that and so maybe these types of provisions are necessary in order to ensure that the majority of these loans will be paid back and we'll really it will be interesting to see whether or not these loans will be paid back over the next 30 years but the provisions are pretty owners from a legal standpoint from the standpoint of as a business owner or as a lawyer representing business owners this seems to me very very one-sided so the last document here is the security agreement which outlines the details of the SBA security that they're taking in your assets in your collateral it goes through in more detail some of the things that I've already touched on specifying what types of obligations that you're agreeing to again it talks about restrictions on transferring your collateral it talks about maintenance and location of your collateral allowing for inspection by the SBA requiring insurance all the things that I've already mentioned and just goes over it in more detail it also references changes to your legal structure place of business jurisdiction and organization or your name and it basically says that you're supposed to notify the SBA by written or electronic communication not less than 30 days before taking any of the following actions including changing or reorganizing the type of organization or form under which it does business moving or changing its place of business or adding a place of business changing its jurisdiction of organization in changing its name and it also says that it's your responsibility to pay for the preparation and filing of all documents secured party deems necessary to maintain perfect and continue the perfection of secured party security interests in the event of any such changes and talks about what constitutes default again it's very similar to the definition of default in the promissory note document it talks about the rights that the SBA has under federal law defines what governing law is talks about secured party rights again talking about more of its own rights and provides that if any provision of this agreement is deemed unenforceable all other provisions remain in effect and this is a typical boilerplate severability provision in most contracts that protects the party that wrote the contract saying that if whatever we wrote in here is illegal or unenforceable all the other parts of this agreement will remain enforceable and that the entire agreement will not be invalidated by one unenforceable or illegal provision finally closes with additional borrower certifications and the signature of the borrower so that's the gist of what's in the loan documents should you decide to accept them and sign on the dotted line as I mentioned a lot of these provisions are very protective of the SBA and very onerous to the borrower there are a lot of things that you should keep in mind and keep track of there are additional costs that are associated with this loan potentially and in my opinion I think before you sign you should consult with an attorney to make sure that everything you are signing for is understood by you and that you know exactly what you're getting yourself into I hope you found this video helpful and I hope that the length of it and the fact that I went into detail with a lot of these provisions didn't put you to sleep if it did I'm sorry if it didn't and if you did get value from it do me a favor and hit the like button and if you haven't subscribed yet to my channel definitely subscribe for more videos like this as well as real estate investing videos and personal finance videos with that said thank you guys for watching I hope you have a great day and I'll see you in the next one take care [Music]
