Legal Question in Business Law in California

Re: How To Document Tertm Loan

I'm a little unclear from your question. Who is borrowing the money from whom? Who owns the licenses to the software?

If you are giving up anything, then you will want a written contract documenting what you are giving up and what you are getting in exchange. Additionally, there are general terms that you will want to consider such as what rights arise if someone breaches the agreement, whether attorney's fees are recoverable, etc.

Considering the amount of money involved you should consult with an attorney to discuss your rights, options and obligations.

Caleb

Re: How To Document Tertm Loan

My understanding is that you, the owner of the software, is getting a $125,000 loan from a customer, and as collateral, you are offering, and the customer is accepting, 80 licenses for workstations to use the software.

If this is correct, the fact that the lender is also a customer is more or less irrelevant to the transaction and its documentation. Of course, if the lender is also able to use the licenses itself if it has to foreclose makes the collateral more attractive!

With that understanding, I'd say the proposed loan is a bit unusual but probably far from unique. Somewhere out there in the software-development world, the documentation has been written, used, copied, doctored, etc. The problem is that you may not locate it before you need the loan, or maybe not in this lifetime.

OK, to start with the basics, most secured loans have three basic parts: the loan agreement, reciting the terms and containing all the covenants, restrictions, representations, indemnities, etc.; the promissory note or notes; and a security agreement in which the borrower grants the lender a security interest in the collateral. Often, there are additional documents such as guarantees. In small, simple deals some of the documents can be combined, but there are good reasons for using separate but integrated documentation.

In my opinion, a $125,000 business loan with $256,000 nominal value collateral being put up is big enough to warrant having a business lawyer with significant experience in secured transactions prepare the documentation. Among the concerns will be writing up and filing a UCC-1 to perfect the lender's security interest. The lender should be concerned about the possible obsolescence of the software and may want assurance that, in the event of a default, it will receive the latest version, with all upgrades, support agreements, etc. in place, and is not getting the CP/M version.

Usually, it is the lender, not the borrower, who asks about documenting loans, and the lender usually requires the borrower to pay the legal costs of documenting the loan and filing the UCC-1.

Re: How To Document Tertm Loan

In great detail. With all the terms, conditions, representations, warranties, waivers, releases, fees, costs, collection, etc., spelled out to protect both sides from dispute later. Feel free to contact me for legal help if you decide to be professional about this.