Loan or Loan Facility Agreement
Taking out a loan to help grow your business? Or granting yourself a personal loan from your company? You need a Loan Agreement. This contract ensures the terms and conditions of the loan are clearly documented and agreed upon – so you know exactly what’s required for repayment.
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What is a Loan Agreement?
A Loan Agreement is a contract between a lender and a borrower. It defines the terms and conditions of the loan when an amount of money is being loaned or borrowed.
This agreement is recommended to prevent any misunderstandings between borrower and lender by clearly setting down the terms of the loan. Primary among such terms is the requirement for the borrower to repay the loan.
Documenting the details of the sum, the interest, and other important provisions in a Loan Agreement ensures that everyone is aware of their obligations.
When should I use a Loan Agreement?
This Loan Agreement should be used when:
- you need to document the terms of a loan amount you are lending to another person or entity; or
- you need to document the terms of a loan amount you are borrowing from a lender.
Our intelligent document generator gives you total control over interest rate, interest accrual (simple, compounding), repayment (periodic, on a specified date, after a specified amount of time or on demand).
You can also sweep up past advances and include them in the loan or loan facility together with future advances/drawdowns. If you choose to create a loan facility, you can even make it revolving (i.e. repayments can be redrawn) if desired.
What topics does a Loan Agreement cover?
- Lender and Borrower’s detail
- Loan vs Loan Facility
- Interest and repayment terms
- Covenants/ negative pledges
- Events of Default
- Warranties from Borrower
- Knowledge and Due Diligence
- Responsibility for costs
- Repayments of the loan amount
- Fees and charges
- Account statements
- Enforcement expenses if the borrower defaults on the loan
- Variations and waivers of rights
- Relevant information statement and other statutory notices.
- Material Adverse Events
- Governing law and jurisdiction
- Notices and Service of notices
- Whole agreement
- Preservation of Business Assets Clause
- Commencement and termination
- Relationship of parties
- Powers, rights and remedies
What are the main decisions I need to make in creating a Loan Agreement?
- Are you creating a loan (specific advances on specific dates) or a loan facility (a line of credit that the borrower can draw from as required – either revolving or non-revolving)?
- Do you want to include previous advances in this loan agreement?
- What is the facility limit and availability period (the latest date on which a drawing by the Borrower can be completed?)
- What is the drawdown limit (minimum amount that can be drawn down each use) and notice period (how much notice is required)?
- What are the purposes for which the money being lent can be used?
- What interest rate, interest accrual (simple, compounding), repayment terms (periodic, on a specified date, after a specified amount of time or on demand) are intended?
- Do you want to include default interest?
- Do you want to include a negative pledge to provide that the borrower cannot take out another loan or security interest without your approval?
- Do you want to include a covenants aimed at preserving the assets of the Borrower?
- What warranties do you want to include?
- Is the debt secured against any assets of the borrower? Note: this document does not create any new security interests—if you need to secure the loan by taking security over any property, you should seek legal advice as separate security documentation will be required; for example, a Deed of Mortgage and/or a General Security Deed. It will also be necessary to consider whether any security interests should be registered on the Personal Property Securities Register. You can create a separate General Security Deed using the online form.
- Who is responsible for bearing the costs of negotiating the loan? Shared or one party only?
- Do you want to include a Material Adverse Event clause requiring the Borrower to notify the Lender of any circumstance that constitutes a ‘Potential Event of Default’?
What other names does a Loan Agreement go by?
A Loan Agreement is also known as:
- Loan Facility Agreement
- Borrowing Arrangement
- Loan Contract
- Money Lending Agreement
- Loan Agreement
- Mortgage loan agreement
- Unsecured Loan Agreement
- Secured Loan Agreement
- Commercial Loan Agreement
Frequently Asked Questions
The parties involved are the lender and the borrower. This agreement may include up to 5 lenders and borrowers if needed.
Generally, you would need this document when you are about to lend or borrow money and want to clarify the rights, duties and terms of the lender and borrower.
The agreement also covers what steps to take when a default event or a dispute arises, and the roles and responsibilities of all the parties involved.
Yes, this agreement becomes legally binding on all parties involved once it is duly signed.
A loan agreement should be prepared and signed off before money is transferred, to ensure everybody is aware of the terms, structure and responsibilities of the parties involved and the relevant procedures in the event of a default or for dispute resolution.
- Borrower details
- Lender details (ACN, Name, Place of Business)
- Details of interest charged
- Repayment conditions
- Events of Default
- Warranties from Borrower
- Borrowers knowledge and due diligence
- Lenders knowledge and due diligence
- Choice of Governing Law
- Dispute Resolution choices
- Responsibility for costs
- Applicable currency
- Insurance requirements
- Type of loan/facility being created
- Use of funds
- Fees and charges
With simple interest, interest is paid on the outstanding amount borrowed only. This amount is called the principal.
- To calculate the interest, simply multiply the outstanding principal by the interest rate per period by the number of periods. Interest is not paid on accrued interest.
With compound interest, interest is paid not only on the outstanding principal but also on accrued interest. Compound interest can be thought of as “interest on interest,” and will make a sum grow at a faster rate than simple interest.
- Each time it is compounded, the accrued interest is notionally added to the principal of the loan, which means that interest then accrues both on the principal of the loan and on the interest that accrued previously.
Yes, it is common for interest to be charged on a personal loan. Most personal loans charge interest as the debt is repaid. Interest is charged for numerous reasons; the largest two aspects being to profit from the risk that the entity giving the loan takes, and to adjust to the changing value of money and inflation within the economy.
The typical repayment schedule included in a Loan Agreement is monthly, but this agreement is fully customizable, and you can adapt it to the schedule you want to use.
Most loans are paid off in monthly sums, however this document provides for including any arrangements made to extend the period between payments if you get the right approval from the lender.
If you fail to pay your loan on time, there can be severe consequences.
At first, the repayments will slowly increase until you have caught up with your repayments.
If the payee is unsuccessful in repaying the payments, they will hear from your creditor through a phone call or letter demanding the payment. If the demands are not met, the loan recovery attempts can be further escalated and/or the loan defaulted.
Defaulting can lead to the inability to secure a loan for years. If the payee is still unable to repay the debts, court action can be enforced. Failure to pay your repayments may result in your account being taken through the courts system in order to legally enforce payment.
The exact consequences and specific default conditions are fully customizable in this agreement.
A Guarantor Clause is a clause within the loan which covers certain instances where the payee might not be able to pay back the loan.
A guarantor will take on the responsibility of paying back the loan if the payee is not able to for whatever reason. A guarantor clause is used as another form of security for the lender, as well as reason for the lender, commonly a bank, to approve your loan.
If you would like to include a guarantor or provide a clause for this please contact us directly and we would be happy to customize a clause for you.
Alternatively, you could use the online form to create another document called a Deed of Guarantee to set out and document the terms of the guarantee and the obligations and rights of the guarantor.
There are several signing options available. How you sign largely depends on where the parties are located and if they will attend signing together. You can print on paper and sign, or use electronic signature tools such as Docusign or Hellosign.
If you need any assistance please contact us directly, we would be happy to assist.
If you have any questions or are uncertain about any aspect of the document please do not sign it or use it, please contact us directly and we would be happy to assist.
Absolutely! Get in touch with us and we can provide a fixed-fee price to review it.
Loan or Loan Facility Agreement
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Looking for something else?
What other documents might I need?
If you’re interested in a Loan Agreement you might also need to think about:
- Company Constitution — The constitution contains a lot of the relevant information needed like the company registration details. This might be relevant if you are lending or borrowing to or from a company.
- Shareholder’s agreement — The information here is relevant to determine the powers of directors and shareholders if you are lending or borrowing from a company, and the decision-making structure which might affect the terms of the Loan Agreement.
- Deed of Guarantee — This document sets out the details and obligations that may apply to a guarantor if guarantees are needed for the Loan Agreement.
- Promissory Note — This will create a legally binding “IOU” from the issuer of the note to the noteholder. This document offers a simpler agreement for a party to pay a set monetary amount to another.
- General Security Deed — This General Security Deed creates general security interests over all of the property of the grantor, much like a fixed-and-floating charge and can be used in conjunction with the security clause in the Loan Agreement.
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