Lending a company money, need security

[Wayland]

What is the name of your state? PA

I have a company that is going to loan another company 10,000. We are going to get a loan agreement in place, so that company pays us back with all the terms of the loan, etc.

The company we are loaning the money to has a lot of risk in their business. Not risk of default, but risk of being sued by other parties. The company is an S-Corp, so the owner’s have protection and insurance for law suites.

But my questions is - what does my company need to do or file to secure our loan that if this company gets sued by someone else; my company get's paid our loan back before the law suite is paid. Want to make sure that even if the company bankrupts we get paid out first in line.

 

[seniorjudge]

Q: But my questions is - what does my company need to do or file to secure our loan that if this company gets sued by someone else; my company get's paid our loan back before the law suite is paid. Want to make sure that even if the company bankrupts we get paid out first in line.

A: Have the promissory note signed by the individuals (AND their spouses) who own the company as well as the company signing.

There is no way to protect you in the way you want.

If you cannot afford to lose this money, then do not lend it.

Also, make sure your attorney writes a bomb-proof promissory note.

 

[JoshDom1898]

I don't think that's exactly true Seniorjudge.

the op could have the company execute the promissory note and have the promissory note secured by a deed of trust on one of the signors residences. That way, if one of the signors default on the promissory note, they can at least foreclose upon the property.

We do that all the time in Real Estate law.