Small Business Loans in Massachusetts: What You Need to Know

Research Massachusetts-specific requirements for small business loans. Massachusetts has specific regulations under M.G.L. Chapter 140 governing lending practices. Understand interest rate caps, disclosure requirements, and prohibited practices to ensure your lender is compliant with state law.

Gather your business formation documents (Articles of Organization for LLCs or Articles of Incorporation for corporations) filed with the Massachusetts Secretary of State. Ensure they're current and accurately reflect your business structure. Lenders will require these to verify your business's legal existence and authority to enter into loan agreements.

Confirm you have all required Massachusetts business licenses and permits. This may include state-level licenses from relevant departments and local permits from your city or town. Missing licenses can delay loan approval and potentially create compliance issues.

Compile comprehensive financial statements including balance sheets, income statements, and cash flow statements for at least the past 2-3 years. Massachusetts lenders typically require these to assess your business's financial health and loan repayment ability. Ensure statements comply with generally accepted accounting principles (GAAP).

Collect business tax returns for the past 2-3 years and personal tax returns if you're a sole proprietor or the lender requires a personal guarantee. Massachusetts lenders use these to verify income and assess tax compliance. Ensure you've filed all required state taxes with the Massachusetts Department of Revenue.

Develop a comprehensive business plan that includes market analysis, competitive positioning, growth projections, and how the loan funds will be used. Massachusetts lenders, particularly for SBA-backed loans, require detailed business plans to assess viability and growth potential.

Generate an up-to-date accounts receivable aging report that categorizes outstanding customer invoices by time periods (current, 30, 60, 90+ days). This helps lenders assess your cash flow management and collection practices.

Verify you have all required business insurance policies as mandated by Massachusetts law and potentially required by lenders. This typically includes general liability, property insurance, workers' compensation (if you have employees), and possibly professional liability insurance. Massachusetts requires workers' compensation for all employees under M.G.L. Chapter 152.

Carefully review the loan agreement provided by your lender. Pay special attention to interest rates (Massachusetts usury laws cap small loan rates), repayment terms, prepayment penalties, default provisions, and any covenants that restrict business operations. Consider having an attorney review this document before signing.

Examine the promissory note which is your written promise to repay the loan. Verify the loan amount, interest rate, payment schedule, and maturity date are accurate and match what was discussed. Massachusetts law requires clear disclosure of these terms.

If your lender requires a personal guarantee, understand that you're personally liable for the debt if your business cannot repay it. This means your personal assets could be at risk. Massachusetts follows general contract law principles for personal guarantees, making them legally binding and enforceable.

If providing collateral, review the security agreement carefully. This document gives the lender rights to specific business assets if you default. Understand exactly which assets are being pledged and the conditions under which the lender can claim them. Massachusetts follows the Uniform Commercial Code (UCC) regarding secured transactions.

If your loan is secured, the lender will likely file a UCC Financing Statement with the Massachusetts Secretary of State. This public notice establishes the lender's security interest in your collateral. Verify the accuracy of the UCC filing to ensure it only covers agreed-upon assets.

Ensure your business is properly registered with the Massachusetts Department of Revenue for all applicable state taxes. Lenders may verify tax compliance before finalizing loans. Massachusetts requires businesses to register for taxes including income tax withholding and sales tax if applicable.

Understand that Massachusetts follows both federal Equal Credit Opportunity Act (ECOA) and state anti-discrimination laws that prohibit discrimination in lending based on race, color, religion, national origin, sex, marital status, age, or because income derives from public assistance. If you believe you've faced discrimination, you can file a complaint with the Massachusetts Commission Against Discrimination.

Create a system to monitor ongoing compliance with loan covenants and reporting requirements. Massachusetts lenders typically require periodic financial reporting and may have specific covenants regarding debt-to-income ratios, working capital requirements, or restrictions on additional borrowing. Failing to comply could trigger default provisions.

Ensure you're filing required annual reports with the Massachusetts Secretary of State. Corporations must file annual reports by the anniversary of their incorporation date, while LLCs must file by the end of the anniversary month. Failure to file can result in your business being not in good standing, which could violate loan covenants.

Review the Truth in Lending disclosure provided by your lender. Massachusetts follows federal Truth in Lending Act requirements and may have additional state disclosure requirements. These disclosures must clearly state the annual percentage rate (APR), finance charges, amount financed, and total payments. Verify these match your understanding of the loan terms.