🔎 Sample report — this is an unedited, real output from TrustLens AI on a non-personal document, shown to demonstrate report quality.
Loan_Agreement.pdf
Loan Agreement · First Capital Lending, LLC ↔ Acme Manufacturing, Inc. · 2 pages
Biggest money exposure
Balloon payment of $247,500 is due in a single lump sum at the end of year five — if you can't pay or refinance, the lender can seize collateral and pursue the personal guarantee.
Score based on: 5 high-risk findings (+15 each), 4 medium-risk findings. Lower is better.
What this is
This is a 5-year commercial loan for $500,000 from First Capital Lending, LLC to Acme Manufacturing, Inc. The money is for general business operations and equipment purchases. The loan carries a fixed 8.25% interest rate, monthly payments of about $10,225, and a large $247,500 balloon payment due at the end of year five.
Who it favors: This agreement strongly favors the lender. It includes an unlimited personal guarantee, no cure period before the lender can demand full repayment, aggressive late fees, a prepayment penalty, and broad collateral over all major business assets. The borrower takes on nearly all the risk.
Where you could lose money
• Balloon payment of $247,500 is due in a single lump sum at the end of year five — if you can't pay or refinance, the lender can seize collateral and pursue the personal guarantee.
• Unlimited personal guarantee: the owner's personal assets (home, savings, etc.) are fully exposed with no dollar cap if the business can't repay.
• Prepayment penalty: paying off the loan early in the first three years costs 5% of the remaining principal — on a $500,000 loan that could be up to $25,000 depending on timing.
• Late payment costs stack up fast: a payment more than 5 days late triggers a 7% flat late fee on that payment PLUS an extra 4% annual default interest rate until you catch up.
• Upfront fees reduce what you actually receive: a non-refundable 3% origination fee ($15,000) plus a $2,500 processing fee deducted from proceeds means you pay interest on $500,000 but only receive $497,500 at closing.
Your key obligations
• Make monthly payments of approximately $10,225 and pay the $247,500 balloon payment at the end of year five.
• Keep a debt service coverage ratio (DSCR) of at least 1.30 and submit financial statements every quarter — falling short triggers a default.
• Maintain $2,000,000 in commercial insurance and list the lender as an additional insured at all times.
• The principal owner must sign an unlimited personal guarantee, putting personal assets on the line for the full loan balance.
• Use loan proceeds only for general business operations and equipment purchases — other uses could violate the agreement.
Deadlines & dates
• Effective Date: July 31, 2026 — the agreement starts and the origination fee and processing fee are due at closing.
• Monthly payments of ~$10,225 begin after closing and continue for the full 5-year term.
• Prepayment penalty of 5% of remaining principal applies if the loan is paid off any time within the first three years.
• Late fee clock starts after just 5 days past a missed payment due date.
• Balloon payment of $247,500 is due at the end of the 5-year term (approximately July 2031).
Suggested next steps
• Ask a commercial lending attorney or financial advisor whether the unlimited personal guarantee can be capped or limited to a specific dollar amount before you sign.
• Ask a professional to review whether the 5% prepayment penalty and 7% late fee terms are negotiable, and what comparable market terms look like for a loan of this size.
• Review with an advisor how you plan to handle the $247,500 balloon payment at year five — ask what happens if refinancing isn't available at that time.
• Ask your accountant whether your business currently meets the 1.30 DSCR requirement and how close to the edge you might be during slow periods.
• Verify with a professional whether any verbal promises or side agreements made by the lender are reflected in writing, since this document states it is the entire agreement and verbal assurances have no legal weight.
“Borrower shall pay a non-refundable origination fee equal to 3% of the loan amount at closing.”
Before you receive any money, you must pay a one-time fee of $15,000 (3% of $500,000) that you will never get back, no matter what happens.
Why it matters: A 3% origination fee is on the higher end for commercial loans and significantly increases your upfront cost. It is non-refundable even if the deal falls through after closing.
3% origination fee is above typical commercial loan norms and is non-refundable.
Questions to ask:
• Is this origination fee negotiable or typical for loans of this type?
• Is the fee refundable if the lender fails to fund the loan?
“If the loan is repaid during the first three years, Borrower shall pay a penalty equal to 5% of the remaining principal.”
If you pay off the loan early within the first three years, you will owe an extra fee of 5% of whatever balance is left. For example, if $400,000 is left, you would owe an extra $20,000.
Why it matters: This penalty can be very expensive and limits your flexibility to refinance or pay off the loan early if your financial situation improves.
A 5% prepayment penalty on remaining principal is a significant financial deterrent to early payoff or refinancing.
Questions to ask:
• Does the prepayment penalty apply if we sell the business or its assets?
• Is the penalty percentage negotiable or can it be reduced after year one or two?
“Payments more than five days late incur a 7% late fee plus default interest of an additional 4% annually until cured.”
If your payment is even five days late, you are charged a 7% fee on that payment right away, and on top of that, your interest rate goes up by an extra 4% per year until you catch up.
Why it matters: This is a stacked penalty structure — an immediate flat fee plus an ongoing higher interest rate — which can compound quickly and make it very hard to recover from a single missed payment.
Combining a 7% flat late fee with an additional 4% annual default interest creates a compounding penalty that is unusually aggressive.
Questions to ask:
• Is there a grace period beyond five days before the late fee is triggered?
• Does the 4% default interest apply to the entire outstanding balance or just the late payment?
“Failure to make any payment, maintain insurance, or comply with financial covenants constitutes an Event of Default allowing immediate acceleration of the loan.”
If you miss a payment, let your insurance lapse, or fail to meet the financial ratio requirements, the lender can immediately demand the entire remaining loan balance all at once.
Why it matters: Immediate acceleration with no cure period is a very strong lender right. Missing even one payment or a financial reporting deadline could trigger a demand for the full loan balance.
Immediate acceleration with no stated cure period gives the lender a one-sided right to demand full repayment for minor or technical defaults.
Questions to ask:
• Is there a cure period — such as 10 or 30 days — before the lender can accelerate the loan?
• Does 'any payment' include fees, or only scheduled principal and interest payments?
“The company's principal owner shall provide an unlimited personal guarantee.”
The owner of the business is personally promising to repay the entire loan with no dollar limit. If the business cannot pay, the lender can go after the owner's personal savings, home, and other personal assets.
Why it matters: An unlimited personal guarantee removes the liability protection that a corporation or LLC normally provides, putting the owner's personal wealth fully at risk.
An unlimited personal guarantee exposes the owner's personal assets with no cap, eliminating the liability shield of the business entity.
Questions to ask:
• Can the personal guarantee be limited to a specific dollar amount or time period?
• Does the guarantee survive if the business is sold or transferred to new ownership?
“At the end of the five-year term, Borrower must pay a final balloon payment of $247,500.”
After five years of monthly payments, you still owe one very large final payment of $247,500 all at once. If you cannot pay it, you could be in default.
Why it matters: Balloon payments require either significant cash reserves or the ability to refinance at maturity, which is not guaranteed and depends on future market conditions.
A large balloon payment at maturity creates significant refinancing risk, especially if credit markets tighten or the business's financial position weakens.
Questions to ask:
• What options does the lender offer if we cannot pay the balloon payment at maturity?
• Is there a right to refinance the balloon payment with this lender at maturity?
“A document processing fee of $2,500 shall be deducted from loan proceeds.”
Instead of receiving the full $500,000, you will actually receive $2,500 less because the lender takes a processing fee directly out of your loan funds before giving them to you.
Why it matters: Deducting fees from loan proceeds means you receive less money than expected but still owe interest on the full principal amount.
You pay interest on the full $500,000 but receive only $497,500, increasing your effective borrowing cost.
Questions to ask:
• Can this fee be paid separately at closing rather than deducted from proceeds?
• What specific services does this processing fee cover?
“Borrower must maintain a minimum debt service coverage ratio of 1.30 and provide quarterly financial statements.”
You must keep enough income to cover your debt payments by at least 1.30 times, and you must send the lender your financial statements every three months. Falling below this ratio could trigger a default.
Why it matters: Financial covenants give the lender ongoing oversight of your business health. Breaching them — even without missing a payment — can trigger default and acceleration.
A 1.30 DSCR covenant with quarterly reporting creates ongoing compliance obligations that could trigger default during business downturns.
Questions to ask:
• What happens if we temporarily fall below the 1.30 DSCR — is there a waiver or cure process?
• Are there any other financial covenants not listed here?
“Borrower grants the lender a first-priority security interest in business assets, equipment, inventory, and accounts receivable.”
You are giving the lender the legal right to take your business equipment, inventory, and money owed to you by customers if you default. The lender's claim comes before anyone else's.
Why it matters: A first-priority security interest in nearly all business assets means the lender can seize the core of your business operations if you default.
Broad collateral coverage over all major business assets significantly limits your ability to use those assets as collateral elsewhere.
Questions to ask:
• Are any business assets excluded from the security interest?
• Does this security interest prevent us from obtaining additional financing from other lenders?
“Principal Amount $500,000 Interest Rate 8.25% Fixed Loan Term 5 Years Monthly Payment $10,225 (Approx.) Balloon Payment $247,500 at maturity”
You are borrowing $500,000 at a fixed 8.25% interest rate. You will make monthly payments of about $10,225 for five years, and then you must pay one large final payment of $247,500 at the end.
Why it matters: These are the core financial terms of the loan. Understanding the total cost — including the balloon payment — is essential before signing.
Fixed rate provides predictability, but the balloon payment adds refinancing risk at maturity.
Questions to ask:
• Is the $10,225 monthly payment approximate, and how was it calculated?
• What happens if we cannot pay the balloon payment at maturity — is refinancing available?
“Borrower shall maintain $2,000,000 in commercial insurance and name Lender as additional insured.”
You must keep a $2,000,000 commercial insurance policy active for the life of the loan, and the lender must be listed on that policy so they can receive payouts directly if something goes wrong.
Why it matters: Failing to maintain this insurance is listed as an Event of Default, which could trigger immediate loan acceleration even if all payments are current.
Standard lender protection, but the required coverage amount should be verified as appropriate for the business size.
Questions to ask:
• What specific types of commercial insurance are required — property, liability, or both?
• How quickly must we notify the lender if our insurance policy changes or lapses?
“This Agreement is governed by the laws of the State of Texas.”
Any legal disputes about this loan will be decided using Texas state laws, regardless of where your business is located.
Why it matters: Texas law will govern how the contract is interpreted and what remedies are available, which may differ from the laws of the borrower's home state.
Since the lender is in Texas and the borrower is in Texas, this is a standard and expected choice of law provision.
Questions to ask:
• Does Texas law provide any specific protections or limitations for commercial borrowers we should be aware of?
“This Agreement constitutes the entire agreement between the parties.”
This document is the complete and final agreement. Any promises, discussions, or side deals made before signing are not legally binding unless they are written in this document.
Why it matters: Any verbal promises or commitments made during negotiations that are not in this document will not be enforceable.
Standard merger clause, but it means any verbal assurances from the lender have no legal weight.
Questions to ask:
• Are there any side letters, addendums, or verbal commitments from the lender that should be incorporated into this agreement before signing?
“The loan proceeds shall be used for general business operations and equipment purchases.”
You are only allowed to use this loan money for running your business and buying equipment. Using it for other purposes could violate the agreement.
Why it matters: Misusing loan proceeds could be considered a default, so it is important to track and document how the funds are spent.
Permitted use restrictions are standard, but the broad language of 'general business operations' may still leave some ambiguity.
Questions to ask:
• How broadly is 'general business operations' defined — does it include paying existing debts or owner distributions?
• Are we required to provide documentation showing how the loan proceeds were used?
This analysis is decision support, not legal advice. Consult a licensed attorney before signing or relying on this document.