If you intend to borrow money to grow your Out of Home company, you need to understand that in most states lenders are protected from liability for oral promises and commitments.  Here’s the Washington state language:

Oral agreements or oral commitment to loan money, extend credit, or to forbear from enforcing repayment of a debt are not enforceable under Washington Law.

Many many states take a similar approach.  They also require a loan agreement to be in writing to be enforceable.  This works two ways.  The Lender has nothing to enforce if it’s not in writing.  But you, as an out of home company borrower, have no ability to hold your lender to an agreement unless it’s in writing.

There are three kinds of documents you’ll get from your Lender when you are looking to borrow money.  We are presenting them in the order of least binding to most binding.

A discussion draft term sheet. 

This is usually a short email or letter suggesting loan terms (loan amount, interest rate, fees, collateral…).  It is for discussion purposes only and is not legally binding.  Most discussion term sheets say that they are not legally binding and that oral agreements are not enforceable.

A commitment letter.

This is a legally binding commitment by your lender to loan you money.  Most lenders issue a commitment letter after they have reviewed and approved your financials and request. Pay particular attention to the conditions precedent to closing section.  This includes the things that need to happen for you to access the money.  This may include:

• Completion of the lenders due diligence
• A site visit to inspect your signs.
• A request of additional information (e.g. leases, financials, permits).
• No material adverse change in your condition or the economy up to the closing of the loan.

Loan Documents.

These are the actual legal documents which describe the loan, what the Lender is obligated to do and what you are obligated to do.  This is the document which courts will look to enforce if there is litigation.

Billboard Insider’s take:  Saying doesn’t make it so when it comes to lending.  Ask for a commitment letter and don’t count your chickens until the Borrowing Agreement is signed.

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