What Should a Loan Agreement Include?
There are many things a Loan Agreement should include. The following list provides examples of terms which should be included in most business loan agreements:
- Amount Borrowed -The amount to be borrowed should be clearly stated in the loan agreement.
- Loan Term -The term of the business loan should be specified to ensure that it is clear when the business loan should be repaid. If no term is provided in the business loan agreement it is likely payable on demand which means that the lender can call in the loan when it chooses.
- Loan Type -Term loans require the borrower to repay the money by instalments (often monthly) over the term of the loan or sometimes in full at the end of the term. A revolving loan by contrast allows the borrower to draw down, repay and re-draw the available funds.
- Repayment - Generally the parties will agree to a fixed date when the business loan should be repaid by and how the payments should be made. However, it is possible that the lender may only agree to an on-demand facility which means that the loan is repayable whenever the lender requests.
- Interest - The borrower will be required to pay interest to the lender. The interest rate may be fixed or floating. Floating interest rates are generally set as percentage above a variable rate, such as the Bank of England Base Rate, whereas fixed rates will remain the same percentage during the term of the business loan.
- Other Fees - In addition to interest the funder can charge other fees, such as arrangement fees, management fees and collection fees. The Borrower should thoroughly read the terms of the loan agreement to work out which additional charges it may need to pay. We can help advise any borrower on understanding the fees which are chargeable under any type of loan agreement.
- Events of Default - If an event of default occurs the lender has the right to call for repayment of the loan. This could mean that the borrower is forced to repay the full loan immediately. Events of default are defined in the loan agreement, for example when non-payment of capital or interest occurs. Please note that if the loan is an on-demand loan there will be no need for an events of default clause because it is already payable on demand. Understanding this part of a business loan agreement is vital. Francis Wilks & Jones can advise on this important aspect.
- Governing Law - It is important that the governing law and jurisdiction should be clearly stated in the loan agreement in the eventuality that legal proceedings are brought.
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Our expert team of banking solicitors at Francis Wilks & Jones are here to help you with any issues that you might be facing in relation to your loan agreement. Our practical daily experience and legal expertise means that we can assist whatever the nature of your banking enquiry.
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