A loan agreement is an important and formal contract evidencing borrowing and additional terms agreed between the parties.
There tend to be 2 types of loan agreements, being :
Secured loan agreements will involve providing formal security, generally either in the form of a charge against specific property or assets, or with a corporate entity, a charge against the company’s shares or assets.
Secured loan agreements involve additional legal work and commonly are the types of loan agreements offered by banks or sizeable financial institutions on a non-negotiable, take it or leave it basis in terms of the clauses incorporated into such agreements. We can advise you whether there is scope for negotiation, and if not, on the full implications of these legal documents which are often written in obscure and confusing language.
Unsecured loan agreements – what to include?
In the most simple of loan agreements, which may be the starting point for a personal, unsecured loan, the basic clauses will need to include :-
- the parties to the loan – if there is more than 1 borrower, the lender will almost certainly include a “joint and several” liability clause into the agreement
- the amount of the loan
- the length of the loan – it may be fixed term, on demand or repayable in the event of a default
- the repayment schedule and the rate of interest
- events of default such as insolvency and which events of default, if any, by the borrower will be such as to trigger immediate and full repayment, or whether there will be more minor breaches where the borrower will have an opportunity to resolve the breach within a reasonable timeframe, which is made clear, before the default will attract the most severe consequences.
- whether the loan agreement is in any way linked to other documents or events – if so, how, which document(s) take precedence and how the agreements will work in tandem.
- information and/or restrictions – these clauses are generally known as undertakings. The borrower may be restricted from taking further loans, may be required to provide information and documents to the lender on demand and a host of other possible ways in which the lender may want or need to protect themselves during the loan agreement period.
- waiver – the lender will normally want a standard clause in the agreement stating that if he/she/they do not strictly enforce every aspect of the loan agreement, they are not to be considered, in law, to have waived their rights generally. In other words, if a borrower misses a payment, and the lender does not take the action open to him/her/them in the loan agreement, this would not constitute a waiver of the right to take action.
- it will in all probability need to have the correct attestation clause – this means the correct “top and tail” for being signed by the parties as a deed.
The process of negotiating a loan agreement can be complex and having a complete understanding of the documentation is vital to safeguarding your interests as a borrower or lender. Obtaining legal advice is money well spent in these circumstances..
How we can help
You will get :-
- a frank evaluation of the risks and benefits of entering into a loan agreement.
- the right document – if the loan is personal a short document will suffice – we do not believe in lengthy legal documents for the sake of it – proportionality is important.
- a clear and comprehensive explanation of the conditions of the loan agreement, so that you are fully aware of the requirements on the borrower.
- ensure, if you are the borrower, that your needs are provided for in the terms of the agreement, not just those of your lender.
- from the simplest form of loan agreement through to advice on highly complex loan arrangements, we can help get you the right document, whether you are lending or borrowing, in a highly practical, cost effective way, also ensuring that you understand what is in the agreement and why. Without this, costly mistakes may well ensue.
Get in touch today for a free discussion, meeting and quotation for advice on any loan or if you need a loan agreement drafted or reviewed.