Overview of Loan Agreement

What is this document?

A Loan Agreement is a contract made between a borrower and lender. It establishes the terms of the loan.

When would I use this document?

This document is used whenever money is lent by one person to another.

Who signs this document?

Loan Agreements are signed by the Borrower and the Lender. If acting on behalf of a corporation, the agreement should be signed by someone who can bind the corporation.

More details about this document

Loan Agreements can range in length depending on the complexity of the loan and how the payment will be paid. In some cases loans can be paid in a lump sum or can be paid in installments over a specified period of time. Lenders will include an interest clause in the document stipulating what interest rate is to be paid on the loan amount, and when interest payments are due.

To reduce the risk that the borrower might not pay the amounts owed under the Loan Agreement, the parties may agree on collateral or security to be part of the deal. This can allow the lender to dispose of the borrower’s collateral (e.g jewellery, shares, vehicles, accounts receivable etc.) to obtain the money owed if the borrower defaults on the loan.

What are the core elements of this document?

The core elements include: parties, principal amount of loan, payment terms and dates, interest rate, due dates, and default. Collateral, effects of default, termination and survival of clauses are also frequently found in loan agreements.

Some examples of additional clauses include prepayment, notice, amendments and indemnification. Some loan agreements also contain security agreements.

Related Documents

  • Bridge Loan - Demand Promissory Note - a promissory note payable on demand (rather than on a specific date) that can be used eg. for a bridge loan
  • Promissory Note - a written promise to pay used to provide security for payment
  • Term Sheet - a document that sets out the basic elements of the transaction or investment
  • Nondisclosure/Confidentiality Agreement - an agreement that protects confidential information
  • Asset Purchase Agreement - an agreement for the sale of the assets of a business
  • Share Purchase Agreement - an agreement for the sale of shares
  • General Security Agreement - an agreement that grants a security interest in collateral to ensure the repayment of a loan or other debt
  • Credit Agreement - a type of loan agreement that provides for a maximum amount of credit available to be used by the borrower when needed over a defined period of time.

Written by Rajah. Rajah Lehal is Founder and CEO of Clausehound.com. Rajah is a legal technologist and technology lawyer who is, together with the Clausehound team, capturing and sharing lawyer expertise, building deal negotiation libraries, teaching negotiation in classrooms, and automating negotiation with software.