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                                                                   EXHIBIT 10.12

                            BUSINESS LOAN AGREEMENT
                            -----------------------

     This Business Loan Agreement (this "Agreement") is entered into by and 
between Comerica Bank-California ("Bank") and Taitron Components Incorporated, a
California corporation ("Borrower") as of this 6th day of May, 1997, at Bank's 
headquarters office at 333 West Santa Clara Street, San Jose, California 95113.

     1.   Loans To Borrower.  Bank and Borrower agree that any loans which Bank 
          -----------------
in its sole discretion has made or may now or hereafter make to Borrower 
(sometimes hereinafter collectively referred to as the "Loan") shall be subject 
to the terms and conditions of this Agreement unless otherwise agreed to in 
writing by Bank and Borrower.  In the event there are contradictions between the
provisions of this Agreement and any other written agreement with the Bank, this
Agreement shall prevail.  Loan shall be subject to the terms and conditions of 
this Agreement, promissory note(s) executed in connection herewith (including, 
without limitation, the Revolving Note and Term Notes identified below) and/or 
previously or subsequently executed, and all amendments, renewals and extensions
thereof (singularly or collectively, the "Note"), and all those certain security
agreements and/or such other security or other documents as Bank has required or
may now or hereafter require in connection with the Loan (collectively, the 
"Loan Documents").  The Loan shall be secured as contemplated by Section 4 
below, pursuant to that certain Security Agreement (All Assets) of even date 
herewith made by Borrower in favor of Bank.

          1A.  Revolving Loan.  The Loan includes a revolving line of credit in 
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the maximum principal amount of SIXTEEN MILLION Dollars ($16,000,000) (the 
"Revolving Commitment Limit"), which shall be evidenced by that certain 
Revolving Note of even date herewith in such maximum principal amount (the 
"Revolving Note").  Principal of and Interest on the Revolving Loan shall be due
and payable upon the terms set forth in the Revolving Note.  As a sub-facility 
under the Revolving Loan, Bank shall issue for the benefit of Borrower one or 
more standby letters of credit (each a "L/C", and collectively the "L/Cs"), 
under which the aggregate of all amounts available to be drawn and all unpaid 
reimbursement obligations shall not exceed TWO MILLION DOLLARS ($2,000,000).  No
L/C shall have an expiration date more than 365 days from its date of issuance 
or in any event later than the maturity date of the Revolving Loan.  As an 
additional sub-facility under the Revolving Loan, Bank shall issue for the 
benefit of Borrower one or more standby letters of credit expiring June 1, 1997 
(each a "Short Term L/C", and collectively the "Short Term L/Cs"), under which 
the aggregate of all amounts available to be drawn and all unpaid reimbursement 
obligations shall not exceed NINE MILLION DOLLARS ($9,000,000).  The Short Term 
L/C sub-facility shall terminate on June 1, 1997.  In no event shall the sum 
(without duplication) of (i) the face amount of all outstanding L/Cs and Short
Term plus (ii) the amount of all outstanding L/C and Short Term L/C
     ----
reimbursement obligations plus (iii) the outstanding Revolving Loan advances 
                          ----
exceed the Revolving Commitment Limit.  All L/Cs and Short Term shall be drawn 
on such terms and conditions as are acceptable to Bank, and shall be governed by
the terms of Bank's standard form letter of credit applications and 
reimbursement agreements for commercial letters of credit, which applications 
and reimbursement agreements Borrower hereby covenants and agrees to execute and
deliver to Bank.  Borrower shall pay Bank its usual and customary fees in 
connection with the L/Cs and the Short Term L/Cs.  Borrower may from time to 
time repay all or a portion of the amounts outstanding under the Revolving Loan 
upon the terms and conditions set forth in the Revolving Note.

          1B.  Term Loan.  The Loan also includes a facility pursuant to which 
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Bank may provide Borrower with one or more term loans (each a "Term Loan"), each
of which shall be in a principal amount of not less than five hundred thousand 
dollars ($500,000) and the aggregate principal amount of which shall not exceed 
FOUR MILLION Dollars ($4,000,000) (the "Term Commitment Limit").  The Term Loan 
facility shall expire on May 6, 1999, whereupon Borrower shall no longer be 
permitted to request, and Bank shall have no further commitment to fund, Term 
Loans.  Each Term Loan shall be evidenced by a Term Note on Bank's standard form
(a "Term Note"), dated the date on which such Term Loan is advanced and in an 
original principal amount equal to the amount of such Term Loan. Each Term Loan
shall bear interest at Bank's Base Rate (as defined in the Term Note) in effect
from time to time or, at Borrower's option, 6-month LIBOR (as defined in the
Term Note) plus 165 basis points (1.65%). Each Term Note shall provide for
monthly payments of interest and principal on the Term Loan thereunder, with
principal payments amortized based upon a maturity equal to the shorter of (a)
four years from the date of funding of such Term Loan and (b) the maturity

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date of Borrower's 8% Subordinated Convertible Note dated May 18, 1996 in the
original amount of $3,000,000 (the "Subordinated Note"). Notwithstanding such
amortization or the scheduled maturity of any Term Note, all outstanding Term
Notes shall automatically and immediately become due and payable upon the
expiration or termination (whether at scheduled maturity, by acceleration or
otherwise) of the Revolving Loan. The proceeds of each Term Loan shall be used
by Borrower exclusively for the acquisition of a business entity or division (or
substantially all assets thereof) engaged in the same lines of business as
Borrower. The funding of each Term Loan shall be subject to receipt by Bank of a
written notice from Borrower at least ten (10) business days prior to the date
of the proposed funding, which notice shall (a) describe the acquisition to be
financed with the requested Term Loan, (b) state the proposed funding date, 
(c) state the amount of the requested Term Loan, (d) contain representations and
warranties by Borrower to the effect that Borrower will be in compliance with
all of the financial covenants and ratios set forth in this Agreement on a 
pro-forma basis after giving effect to the proposed acquisition and Term Loan,
and (e) certify to and attach a pro-forma balance sheet of Borrower giving
effect to the proposed acquisition and Term Loan. As a further condition to the
funding of any Term Loan, Bank shall have received such documents and
instruments as it may request, duly executed and delivered by Borrower, to
ensure that Bank has a valid and perfected first priority security interest in
all of the assets (other than real property) being acquired by Borrower directly
or indirectly in connection with the proposed acquisition. Each Term Loan shall
be subject to prepayment solely upon the terms and conditions set forth in the
applicable Term Note.

     2.   Legal Effect. This Agreement supplements the terms and conditions of 
          ------------
the Loan Documents. Except as otherwise specified herein, all terms used in this
Agreement shall have the same meaning as given in the Note and/or Loan Documents
which are incorporated herein by this reference. Any and all terms used in this 
Agreement, the Note and/or the Loan Documents shall be construed and defined in 
accordance with the meaning and definition of such term under and pursuant to 
the California Uniform Commercial Code, as amended. Except as specifically 
modified hereby, all of the terms and conditions of the Note and/or the Loan 
Documents shall remain in full force and effect.

     3.   Loan fees. Borrowers shall pay to Bank an annual loan fee of $20,000,
          ---------         
payable concurrently with the initial advance under the Revolving Loan and on
each anniversary thereof. Such annual loan fee shall include Bank's audit fees,
for which Borrower shall not be separately charged. Borrower shall also pay Bank
a documentation fee of $2,500 concurrently with the initial Revolving Loan
advance, and shall reimburse Bank for its other costs and expenses incurred in
connection with the preparation and consummation of this Agreement. In addition,
Borrower shall pay Bank's analysis fees on a monthly basis in accordance with
Bank's standard account analysis agreement, which shall be executed and
delivered concurrently herewith and be deemed a "Loan Document" for all purposes
hereunder.

     4.   Security. As security for Borrower's obligations to Bank under this 
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Agreement, the Note and/or the Loan Documents and all other indebtedness and
liabilities whatsoever of Borrower to Bank, whether direct or indirect, absolute
or contingent, due or to become due, now existing or hereafter arising,
evidenced by the Note and/or the Loan Documents (collectively, the
"Indebtedness"). Borrower hereby grants to Bank, prior to or simultaneously with
the borrowing hereunder, a continuing security interest of first priority in all
of Borrower's personal property, including without limitation all accounts
receivable, inventory, equipment and intangibles and all proceeds thereof and in
all collateral provided to Bank pursuant to any security agreement and/or all
collateral that is delivered to Bank and/or which Bank possesses and all
proceeds thereof (collectively, the "Collateral");

     5.   Representations and Warranties of Borrower. Borrower represents and
          ------------------------------------------
warrants to Bank that as of the date of acceptance of this Agreement, the Note
and/or Loan Documents, as of the date of borrowing hereunder and at all times
the Loan or any other indebtedness are outstanding hereunder.

          (a) If Borrower is a corporation, Borrower is duly organized, validly
existing and in good standing under the laws of the state of its incorporation;
if a partnership, Borrower is duly organized and validly existing under the 
partnership agreement and the applicable laws of the state in which the 
partnership is formed or exists or if a limited liability company, Borrower is
duly organized and validly existing under the operating agreement and the
applicable laws of the state in which the limited liability company is formed:

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          (b)  Borrower has the legal power and authority, to own its properties
and assets and to carry out its business as now being conducted; it is qualified
to do business in every jurisdiction wherein such qualification is necessary; it
has the legal power and authority to execute and perform this Agreement, the
Note and/or the Loan Documents to borrow money in accordance with its terms, to
execute and deliver this Agreement, the Note and the Loan Documents, and to do
any and all other things required of it hereunder; and this Agreement, the Note
and all the Loan Documents, when executed on behalf of Borrower by its duly
authorized officers, partners or members, as the case may be, shall be its
valid and binding obligations legally enforceable in accordance with their
terms;

          (c)  The execution, delivery and performance of this Agreement, the
Note and/or the Loan Documents and the borrowings hereunder and thereunder 
(i) have been duly authorized by all requisite corporate, partnership or company
action; (ii) do not require governmental approval; (iii) will not result (with
or without notice and/or the passage of time) in any conflict with or breach or
violation of or default under, any provision of law, the articles of
incorporation, articles of organization, operating agreement, bylaws or
partnership agreement of Borrower, any provision of any indenture, agreement or
other instrument to which Borrower is a party, or by which it or any of its
properties or assets are bound; and (iv) will not result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon any
of the properties or assets of Borrower.

          (d)  The balance sheet of Borrower as provided to Bank in connection 
herewith and the related statement of income of Borrower provided to Bank for 
the period ended March 31, 1997, fairly present the financial condition of 
Borrower in accordance with generally accepted accounting principles ("GAAP") 
consistently applied; and from the date thereof to the date hereof, there has 
been no material adverse change in such condition or operations; and 

          (e)  There is not pending nor, to the best of Borrower's knowledge, 
threatened, any litigation, proceeding or governmental investigation which could
materially and adversely affect its business or its ability to perform its 
obligations, pay the Indebtedness and/or comply with the covenants set forth 
herein and/or the Note and/or the other Loan Documents.

     6.   Affirmative Covenants.  Until the Indebtedness is paid in full, 
          ---------------------
Borrower covenants and agrees to do the following:

          (a)  Furnish to Bank within fifteen days of filing with the Securities
and Exchange Commission, copies of Borrower's quarterly report on form 10-Q and 
Borrower's annual report on Form 10-K (provided that if at any time Borrower 
ceases to be subject to the periodic reporting requirements of the Exchange Act 
of 1934, Borrower shall provide Bank with unaudited quarterly financial 
statements and audited annual financial statements); 

          (b)  In addition to the financial statements requested above, Borrower
agrees to provide Bank with the following schedules in a form acceptable to 
Bank, in each case on a quarterly basis within 15 days after the end of each 
quarter; Accounts Receivable Aging Reports; Accounts Payable Aging Reports; and 
Inventory Reports.

          (c)  Promptly inform Bank of the occurrence of any default or event of
default as defined in the Note and/or the Loan Documents (hereinafter referred 
to as "Default") or of any event which could have a materially adverse effect 
upon Borrower's business, properties, financial condition or ability to comply 
with its obligations hereunder, including without limitation its ability to pay 
the Indebtedness;

          (d)  Furnish such other information as Bank may reasonably request;

          (e)  Keep in full force and effect its own corporate, company or 
partnership existence in good standing; continue to conduct and operate its 
business substantially as presently conducted and operated and maintain and 
protect all franchises and trade names and preserve all the remainder of its 
property used or useful in the conduct of its business and keep the same in good
repair and condition;


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<PAGE>
 
               (f)     Comply with the financial convenants set forth in 
Addendum A, attached hereto and made a part hereof,

               (g)     Maintain a standard and modern system of accounting in 
accordance with GAAP consistently applied with ledger and account cards and/or 
computer tapes and computer disks, computer printouts and computer records 
pertaining to the Collateral which contain information as may from time to time 
be requested by Bank, not modify or change its method of accounting without the
written consent of Bank first obtained, permit Bank and any of its employees, 
officers, or agents, upon demand, during Borrower's usual business hours, or the
usual business hours of any third person having control thereof, to have access 
to and examine all of Borrower's records relating to the Collateral, Borrower's 
financial condition and the results of Borrower's operations and in connection
therewith, permit Bank or any of its agents, employees, or officer to copy and
make extracts therefrom:

               (h)     Maintain Borrower's same place of business or chief 
executive office or residence as indicated below, and not relocate said address 
without giving Bank 30 days prior written notice;

               (i)     Maintain insurance with such insurers in such amounts and
of a type satisfactory to Bank, with Bank to be designated as the payee of any 
such insurance policies under a payee/secured lender clause acceptable to 
Bank; and
             
               (j)     On a continuing basis from the date of this Agreement 
until the Indebtedness is paid in full and the Borrower has performed all of its
other obligations hereunder, the Borrower represents and agrees that there are
not and will not be Hazardous Materials (as later defined) on, in or under any
real or personal property ("Property") now or at any time owned, occupied or
operated by the Borrower which in any manner violate any Environmental Law (as
later defined). As used herein, "Hazardous Materials" mean all of the following:
any asbestos, petroleum, petroleum by-products, flammable explosives, or
radioactive materials or any hazardous or toxic materials as defined in the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended (42 U.S.C. Sections 9601 et seq.) or in any other Environmental Law. As
used herein, "Environmental Law" means any federal, state, local or other law,
ordinance, statute, directive, rule, order or regulation on object of which is
to regulate or improve health, safety or the environment.

       7.      Negative Covenants.  Borrower shall not, without Bank's prior
               ------------------
written consent, do any of the following:

               (a)     Grant a security interest in or permit a lien, claim or 
encumbrance upon any of the Collateral to any person, association, firm,
corporation, entity, governmental agency or instrumentality;

               (b)     Permit any levy, attachment or restraint to be made 
affecting any of Borrower's assets, unless the same is being contested in good 
faith by appropriate proceedings, execution is stayed during such proceedings
and Borrower has taken appropriate reserves therefore in accordance with GAAP;

               (c)     Permit any judicial officer or assignee to be appointed 
or to take possession of any or all of Borrower's assets;

               (d)     Other than sales of inventory in the ordinary course of 
Borrower's business, to sell, lease or otherwise dispose of, move or transfer, 
whether by sale or otherwise, any of Borrower's assets;

               (e)     Change its name, business structure, corporate identity 
or structure; add any new fictitious name, liquidate, merge or consolidate with 
or into any other business organization;

               (f)     Move or relocate any collateral except in the ordinary 
course of Borrower's business;

               (g)     Acquire any other business organization except as 
contemplated by and permitted pursuant to the Term Loan facility;

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<PAGE>
 

               (h)     Enter into any transaction not in the usual course of 
Borrower's business;

               (i)     Make any investment in securities of any person, 
association, firm, entity or corporation other than securities of the United 
States of America;

               (j)     Make any change in Borrower's financial structure or in 
any of its business objects, purposes or operations which would adversely affect
the ability of Borrower to pay its obligations;

               (k)     Incur any debt outside the ordinary course of Borrower's 
business;

               (l)     Make any advance or loan except in the ordinary course of
Borrower's business;

               (m)     Make loans, advances or extensions of credit to any 
person, expect for sales on open account and otherwise in the ordinary course of
business;

               (n)     Guaranty or otherwise, directly or indirectly, in any way
be or become responsible for obligations of any other person, whether by 
agreement to purchase the indebtedness of any other person, agreement for the 
furnishing of funds to any other person through the furnishing of goods, 
supplies or services, by way of stock purchase, capital contribution, advance or
loan, for the purpose of paying and discharging (or causing the payment or 
discharge of) the indebtedness of any other person, or otherwise, except for the
endorsement of negotiable instruments by Borrower in the ordinary course of 
business for deposit or collection;

               (o)     Sell, lease, transfer or otherwise dispose of properties 
and assets having an aggregate book value of more than two hundred thousand 
dollars ($200,000) (whether in one transaction or in a series of transactions) 
except as to the sale of the inventory in the ordinary course of business; 
change its name, consolidate with or merge into any corporation, permit another 
corporation to merge into it, acquire all or substantially all of the properties
or assets of any other person, enter into any reorganization or recapitalization
or reclassify its capital stock, or enter into any sale-lease back transaction;

               (p)     Purchase or hold beneficially any stock or other 
securities of, or make any investment or acquire any interest whatsoever in, any
other person, except for the common stock of the subsidiaries owned by Borrower 
on the date of this Agreement or other applicable date and except for 
certificates of deposit with maturities of one year or less of a United States 
commercial bank with capital, surplus and undivided profits in excess of 
five hundred million dollars ($500,000,000), and direct obligations of the
United States government maturing within one (1) year from the date of
acquisition thereof;

               (q)     Allow any fact, condition or event to occur or exist with
respect to any employee, pension or profit sharing plan established or 
maintained by it which might constitute grounds for termination of any such plan
or for the court appointment of a trustee to administer any such plan;

               (r)     Without Bank's prior written consent (except as 
contemplated by and permitted pursuant to the Term Loan facility), acquire or 
expend for or commit itself to acquire or expend for fixed assets by lease, 
purchase or otherwise in an aggregate amount that exceeds three hundred thousand
dollars ($300,000) in any fiscal year; or

               (s)     Without Bank's prior written consent, pledge or otherwise
hypothecate any of its assets except for (i) purchase money security interests 
the lien of which is limited to the acquired property and (ii) dispositions of 
obsolete or worn out assets in the ordinary course of business or become liable 
for borrowed money or finance loans in excess of one hundred thousand dollars 
($100,000) during any fiscal year.

       8.      Default.  The terms "Default" or "Event of Default", as used 
               -------
herein, shall have the meaning given in the Note and/or the Loan Documents.  In 
addition, the parties agree that any one or more of the

                                       5


<PAGE>

following events shall constitute a default by Borrower under this Agreement, 
the Note and/or the Loan Documents:

          (a)  If Borrower fails or neglects to perform, keep or observe any 
term, provision, condition, covenant, agreement, warranty or representation 
contained in this Agreement, the Note, the Loan Documents or any other present 
or future agreement between Borrower and Bank;

          (b)  If any material representation, statement, report or certificate 
made or delivered by Borrower, or any of its officers, employees or agents to 
Bank is not true and correct;

          (c)  If Borrower fails to pay when due and payable or declared due and
payable, all or any portion of the indebtedness (whether or principal, interest,
taxes, reimbursement of Bank expenses, or otherwise);

          (d)  If there is a material impairment of the prospect of repayment 
of all or any portion of Borrower's obligations, including without limitation 
the indebtedness or a material impairment of the value or priority of Bank's 
security interest in the collateral;

          (e)  If all or any of Borrower's assets are affected, become subject 
to a writ or distress warrant, or are levied upon, or come into the possession 
of any judicial officer or assignee and the same are not released, discharged 
or bonded against within ten (10) days thereafter;

          (f)  If any insolvency proceeding is filed or commenced by or against 
Borrower without being dismissed within ten (10) days thereafter;

          (g)  If any bankruptcy or other proceeding is filed or commenced by or
against Borrower for its reorganization, dissolution or liquidation without 
being dismissed within ten (10) days of its commencement;

          (h)  If Borrower is enjoined, restrained or in any way prevented by 
court order from continuing to conduct all or any material part of its business 
affairs;

          (i)  If a notice of lien, levy or assessment is filed of record with 
respect to any or all of Borrower's assets by the United States Government, or 
any department, agency or instrumentality thereof, or by any state, county, 
municipal or other government agency, or if any taxes or debts owing at any time
hereafter to any one or more of such entities becomes a lien, whether choate or 
otherwise, upon any or all of the Borrower's assets and the same is not paid on 
the payment date thereof, unless the same is being contested in good faith by 
appropriate proceedings, execution is stated during such proceedings and 
Borrower has taken appropriate reserves therefore in accordance with GAAP;

          (j)  If a judgment or other claim becomes a lien or encumbrance upon 
any or all of Borrower's assets and the same is not satisfied, dismissed or 
bonded against within ten (10) days thereafter;

          (k)  If Borrower's records are prepared and kept by an outside 
computer service bureau at the time this Agreement, the Note and/or the Loan 
Documents are entered into or during the term of this Agreement, the Note and/or
the Loan Documents, such an agreement with an outside service bureau is entered
into, and at any time thereafter, without first obtaining the written consent of
Bank, Borrower terminates, modifies, amends or changes its contractual
relationship with said computer service bureau or said computer service bureau
fails to provide Bank with any requested information or financial data
pertaining to Bank's Collateral, Borrower's financial condition or the results
of Borrower's operations;

          (l)  If Borrower permits a default in any material agreement to which 
Borrower is a party with third parties so as to result in an acceleration of the
maturity of Borrower's indebtedness to others, whether under any indenture, 
agreement or otherwise; 

                                       4

<PAGE>
 
               (m)     If Borrower makes any payment on account of indebtedness 
which has been subordinated to Borrower's obligations to Bank, including without
limitation the indebtedness (other than scheduled payments when due of interest 
on the Subordinated Note as in effect on the date hereof);

               (n)     If any material misrepresentation exists now or 
thereafter in any warranty or representation made to Bank by any officer or 
director of Borrower, or if any such warranty or representation is withdrawn by 
any officer or director;

               (o)     If any party subordinating its claims to that of Bank's 
or any quarantor of Borrower's obligations terminates its subordination or 
guaranty, becomes insolvent or an insolvency proceeding is commenced by or 
against any such subordinating party or guarantor, or

               (p)     If any reportable event, which the Bank determines 
constitutes grounds for the termination of any deferred compensation plan by the
Pension Benefit Guaranty Corporation or for the appointment by the appropriate
United States District Court of a trustee to administer any such plan, shall
have occurred and be continuing thirty (30) days after written notice of such
determination shall have been given to Borrower by Bank, or any such Plan shall
be terminated within the meaning of Title IV of the Employment Retirement Income
Security Act ("ERISA"), or a trustee shall be appointed by the appropriate
United States District Court to administer any such plan, or the Pension Benefit
Guaranty Corporation shall institute proceedings to terminate any plan and in
case of any event described in this Section 8, the aggregate amount of the
Borrower's liability to the Pension Benefit Guaranty Corporation under Sections
4062, 4063 or 4064 of ERISA shall exceed five percent (5%) of Borrower's
Tangible Effective Net Worth.

       Bank shall not be obligated to make advances to Borrower during any cure 
period provided for in Sections 8(e), 8(f), 8(i), 8(j), and 8(p) above.

       9.      Rights and Remedies.  The parties have agreed as follows with 
               -------------------
respect to Bank's rights and remedies upon Default:

               (a)     Bank shall have all rights and remedies available 
hereunder and under the Note and the Loan Documents and under applicable law;

               (b)     Bank may at its option without notice, accelerate the 
indebtedness and declare all indebtedness to be due, owing and payable in full;

               (c)     No Default (as defined in this Agreement, the Note and/or
the Loan Documents) shall be waived by Bank except in writing and a waiver of 
any Default shall not be a waiver of any other default or of the same default on
a future occasion;

               (d)     No single or partial exercise of any right, power or 
privilege hereunder, or any delay in the exercise hereof, shall preclude other 
or further exercise of the rights of the parties under this Agreement, the Note 
and/or the Loan Documents; and

               (e)     No forbearance on the part of Bank in enforcing any of 
its rights under this Agreement, the Note and/or the Loan Documents nor any 
renewal, extension or rearrangement of any payment or covenant to be made or 
performed by Borrower hereunder shall constitute a waiver of any of the terms of
this Agreement, the Note, and/or the Loan Documents, or of any such right.

       10.     Cross-Default.  A Default under this Agreement shall also be a 
               -------------
Default under the Note and the Loan Documents, and vice versa.  A Default under 
this Agreement, the Note and/or the Loan Documents shall also be a Default under
every other note and other agreement between Bank and Borrower, and vice versa.

       11.     Cross-Collateral.  Any collateral for this Agreement, the Note 
               ----------------
and/or the Loan Documents shall also be Collateral for other obligations owing 
by Borrower to Bank.  Notwithstanding the above, (i)

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<PAGE>
 
to the extent that any portion of the indebtedness is a consumer loan, that 
portion shall not be secured by any deed of trust or mortgage on or other 
security interest in any of the undersigned's principal dwelling or in any of 
the undersigned's real property which is not a purchase money security interest
as to that portion, unless expressly provided to the contrary in another place, 
or (ii) if the undersigned (or any of them) has (have) given or give(s) Bank a 
deed of trust or mortgage covering real property, that deed of trust or mortgage
shall not secure this Note or any other indebtedness of the undersigned (or any 
of them), unless expressly provided to the contrary in another place.

       12.     Survival of Covenants, Agreements, Representations and 
               ------------------------------------------------------
Warranties.  All convenants, agreements, representations and warranties (a) 
----------
previously made (except as specifically subsequently modified); (b) made in 
connection herewith or with the Note and/or the Loan Documents and/or any 
document contemplated hereby; or (c) executed hereafter (unless such document 
expressly states that this Agreement does not apply thereto) shall survive the 
borrowing hereunder and thereunder and the repayment in full of the Note and/or 
the Loan Documents and any amendments, renewals, or extensions thereof and shall
be deemed to have been relied upon by Bank.  All statements contained in any 
certificate or other document delivered to Bank at any time by or on behalf of 
Borrower shall constitute representations and warranties by Borrower.

       13.     Miscellaneous.  The parties agree to the following miscellaneous 
               -------------
terms:

               (a)     This Agreement, the Note and the Loan Documents shall be 
governed by California law, without regard for the effect of conflict of laws;

               (b)     Borrower agrees that it will pay all out of pocket costs 
of Bank and expenses (including, without limitation, Bank's attorneys' fees and
costs and/or fees, transfer charges and costs of Bank's in-house counsel) in
connection with the preparation of this Agreement, the Note and/or the Loan
Documents and/or the documents contemplated hereby and the closing of the Loan;

               (c)     This Agreement, the Note and/or the Loan Documents shall 
inure to the benefit of and shall be binding upon the parties hereto and their 
respective successors and assigns; provided, however, that Borrower shall not 
assign or transfer its right or obligations under this Agreement, the Note 
and/or the Loan Documents without the prior written consent of Bank;

               (d)     Borrower acknowledges that Bank may provide information 
regarding Borrower and the Loan to Bank's parent, subsidiaries and affiliates 
and service providers, and

               (e)     This Agreement is an integrated agreement and supersedes 
all prior negotiations and agreements regarding the subject matter hereof.  Any 
amendments hereto shall be in writing and be signed by all parties hereto.

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<PAGE>
 
     14.   JURY WAIVER. THE BORROWER AND THE BANK ACKNOWLEDGE THAT THE RIGHT TO 
           -----------
TRIAL BY JURY IS A CONSITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EARCH PARTY, 
AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF 
THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES 
ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE 
OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS AGREEMENT OR THE INDEBTEDNESS 
OR ANY LOAN DOCUMENT.

     IN WITNESS, WHEREOF, the parties have executed this Business Loan 
Agreeement as of the date first set forth above.

Address of Borrower:                   Borrower:

25202 Anza Drive                       TAITRON COMPONENTS INCORPORATED
---------------------------            -------------------------------
Santa Clarita, CA 91355
---------------------------
                                       By: /s/ illegible              
---------------------------                ---------------------------
                                       Title: President & CEO         
                                              ------------------------
 
                                       By: 
                                           ---------------------------
                                       Title: 
                                              ------------------------

                                       Comerica Bank California
                                       ("Bank")

                                       By: /s/ illegible             
                                           ---------------------------
                                       Title: CBO                    
                                              ------------------------

                                       9
<PAGE>
 
                     ADDENDUM A TO BUSINESS LOAN AGREEMENT
                     -------------------------------------
                             (FINANCIAL COVENANTS)

     1.   Definitions Relating to Financial Covenants
          -------------------------------------------

          Current Assets as used in this Agreement means, as of any applicable 
          --------------
date of determination, all unrestricted cash, CD's or marketable securities, 
non-affiliated accounts receivables, United States Government securities and/or 
claims against the United States Government, and inventories (held for sale in 
the ordinary course of business) or Borrower and its subsidiaries.

          Current Liabilities as used in this Agreement mean, as of any 
          -------------------
applicable date of determination, (i) all liabilities of Borrower or its 
subsidiaries that should be classified as current in accordance with GAAP, 
including, without limitation, any portion of the principal of the Indebtedness 
under this Agreement, the Note and/or the Loan Documents classified as current, 
plus (ii) to the extent not otherwise included, all liabilities of Borrower to 
any of its affiliates (including officers, directors, shareholders, 
subsidiaries and commonly held companies), whether or not classified as current 
in accordance with GAAP unless same shall be the long term portion of 
Subordinated Debt (as defined below).

          Current Ratio as used in this Agreement means, as of an applicable 
          -------------
date of determination, Current Assets divided by Current Liabilities.

          Debt shall mean, as of any applicable date of determination, all items
          ----
of indebtedness, obligation or liability of a person, whether matured or 
unmatured, liquidated or unliquidated, direct or indirect, absolute or 
contingent, joint or several, that should be classified as liabilities in 
accordance with GAAP excepting such liabilities as shall be Subordinated Debt 
(as defined below).
   
          Subordinated Debt as used in this Agreement means indebtedness of 
          -----------------
Borrower to third parties which has been subordinated to all indebtedness owing 
by Borrower to Bank pursuant to a subordination agreement in form and content 
satisfactory to Bank.

          Tangible Effective Net Worth as used in this Agreement means Tangible 
          ----------------------------
Net Work as of any applicable date of determination, increased by the long term 
portion of Subordinated Debt (as defined above), if any, of Borrower or its 
subsidiaries and decreased by the following: Subscription lists, organization 
expenses, trade accounts receivables converted to notes, and money due to 
Borrower or its subsidiaries from affiliates (including officers, directors, 
subsidiaries and commonly held companies).

          Tangible Net Worth as used in this Agreement means, as of any 
          ------------------
applicable date of determination, the excess of:

          (a)    the net book value of all assets of Borrower and its 
subsidiaries (other than patents, patent rights, trademarks, trade names, 
franchises, copyrights, licenses, goodwill, and similar intangible assets) after
all appropriate deductions in accordance with GAAP (including, without 
limitation, reserves for doubtful receivables, obsolescence, depreciation and 
amortization), over

          (b)    all Total Liabilities of Borrower and its subsidiaries.

          Total Liabilities as used in this Agreement means, as of any 
          -----------------
applicable date, the total of all items of indebtedness, obligation or liability
which, in accordance with GAAP consistently applied, would be included in 
determining the total liabilities of Borrower or its subsidiaries, including, 
without limitation, (a) all obligations secured by any mortgage, pledge, 
security interest or other lien on property owned or acquired, whether or not 
the obligations secured thereby shall have been assumed; (b) all obligations 
which are capitalized lease obligations; and (c) all guaranties, endorsements or
other contingent or surety obligations with respect to the indebtedness of 
others, whether or not reflected on the balance sheets of Borrower or its 
subsidiaries, including, without limitation, any obligation to furnish funds, 
directly or indirectly through the

                                      10
<PAGE>
 
purchase of goods, supplies, services, or by way of stock purchase, capital 
contribution, advance or loan or any obligation to enter into a contract for any
of the foregoing.

          Total Liabilities to Tangible Effective Net Worth Ratio means, as of 
          -------------------------------------------------------
any applicable date, Total Liabilities divided by Tangible Effective Net Worth.

     2.   Financial Covenants. Borrower shall maintain the following financial 
          -------------------
ratios and covenants on a consolidated and non-consolidated basis:

          (a)   Tangible Effective Net Worth in an amount not less than (i) 
$26,500,000 at any time through the end of fiscal year 1997, (ii) $28,000,000 at
any time commencing on the first day of fiscal year 1998 and ending on the last 
day of fiscal year 1998, and (iii) $29,5000,000 commencing on the first day of 
fiscal year 1999 and thereafter;

          (b)   A ratio of Current Assets to Current Liabilities of not less 
than 2.25:1.0; and

          (c)   A ratio of Total Liabilities (less Subordinated Debt as defined 
herein) to Tangible Effective Net Worth of less than 1.25:1.0.

     All financial covenants shall be computed in accordance with GAAP 
consistently applied except as otherwise specifically set forth in this 
Agreement. All monies due from affiliates (including officers, directors and 
shareholders) shall be excluded from Borrower's assets for all purposes 
hereunder.

                                      11