Small Business Loans in Tennessee: What Entrepreneurs Need to Know

Gather all essential business formation documents including articles of incorporation/organization, operating agreement, bylaws, and EIN documentation. These documents establish your business's legal existence and structure, which lenders will require to verify your business is properly formed and authorized to enter into loan agreements in Tennessee.

Ensure your business has all required Tennessee state and local business licenses and permits. Tennessee requires most businesses to register with the Secretary of State and obtain a business license from the county and/or city where you operate. Some industries require additional specialized licenses. Operating without proper licensing can invalidate loan agreements and create legal complications.

Compile comprehensive financial statements including balance sheets, income statements, and cash flow statements for at least the past 2-3 years (if available) and projections for the loan term. Tennessee lenders are required to verify the financial viability of borrowers, and these documents will be essential for loan approval.

Develop a detailed business plan that outlines how the loan funds will be used and how they will generate returns to repay the loan. Include market analysis, competitive positioning, and financial projections. While not legally required, a solid business plan is often necessary for loan approval and demonstrates compliance with the lender's due diligence requirements.

Collect business and personal tax returns for the past 2-3 years. Tennessee lenders typically require these to verify income and tax compliance. Ensure you're current on all Tennessee state taxes, including franchise and excise taxes, as tax delinquencies can prevent loan approval.

Verify you have all required insurance policies for your business type in Tennessee. Most lenders require general liability insurance, and depending on your business, you may need professional liability, property, workers' compensation, or other specialized coverage. Tennessee law requires workers' compensation insurance for businesses with 5 or more employees.

If your business has accounts receivable, create an aging report that categorizes outstanding invoices by time periods (current, 30, 60, 90+ days). This document helps lenders assess your cash flow and collection practices, which is particularly important for Tennessee lenders evaluating business loans secured by accounts receivable.

Carefully review the loan agreement provided by your lender. Under Tennessee law (T.C.A. § 47-14-101 et seq.), pay special attention to interest rates, as Tennessee has usury laws that cap interest rates for most loans. The legal maximum rate varies based on loan type and amount, but generally cannot exceed 24% for most business loans. Consider having an attorney review this document before signing.

Examine the promissory note, which is the legal document that contains your promise to repay the loan. Verify that all terms match what was discussed with the lender, including principal amount, interest rate, payment schedule, and default provisions. Tennessee law requires specific disclosures in promissory notes, including clear repayment terms.

If the lender requires a personal guarantee, understand that you're personally liable for the business debt if your business cannot pay. Tennessee courts generally enforce personal guarantees strictly. Consider whether multiple owners should provide guarantees and the potential impact on personal assets, including your home, which has certain protections under Tennessee homestead exemption laws.

If providing collateral for the loan, carefully review the security agreement that gives the lender rights to specific business assets if you default. Under Tennessee's adoption of the Uniform Commercial Code (T.C.A. § 47-9-101 et seq.), the security agreement must identify the collateral with reasonable specificity and be signed by the debtor.

If your loan is secured by business assets, the lender will file a UCC Financing Statement (UCC-1) with the Tennessee Secretary of State. Verify the accuracy of this filing, as errors could affect the lender's security interest. The filing fee in Tennessee is currently $15 per debtor name. This filing gives public notice of the lender's security interest in your business assets.

Ensure your business is properly registered with the Tennessee Department of Revenue for all applicable state taxes. Depending on your business type, this may include sales tax, franchise and excise tax, and other specialized taxes. Tax compliance is often verified during the loan process.

Create a system to monitor ongoing compliance with loan covenants and reporting requirements. Many business loans in Tennessee require periodic financial reporting, maintenance of certain financial ratios, and other ongoing compliance obligations. Failure to meet these requirements can trigger default provisions even if payments are current.

Review the default provisions in your loan documents and understand the consequences under Tennessee law. Tennessee follows judicial foreclosure procedures for real property and allows for self-help repossession of personal property collateral under certain circumstances. Understanding these provisions helps you prioritize this debt obligation appropriately.