Our experienced loan agreement lawyers can help you understand and negotiate your loan agreement so you can focus on running your business.
Types of loan agreements
A loan agreement is a formal contract that you enter when borrowing money. Whether a family member is helping you grow your business or you’re borrowing money from a lending institution like a bank, you should have a loan agreement in place.
There are several different types of loans that you can take out, and these will affect what you need to consider in your loan agreement. Types of loans include:
- Secured loans, which are when you use property as collateral for the loan. These are often used when you’re purchasing a building or an asset, as the building can be used to secure the loan. Examples of secured loans include mortgages and many types of car or asset finance loans;
- Unsecured loans do not use any asset for collateral. This means they often have a higher interest rate and may be used to finance long or short term business requirements;
- Overdrafts are often provided by financial institutions. They allow you to use more money than you have available in your account so you can cover short term cash flow issues;
- Line of credit is usually used if you need to progressively draw down funds for a project or acquisition. It gives you the ability to call on the funds over time as and if you need them.
What to include in your loan agreement
What you need to include in your loan agreement may depend on what the loan is for. But there are some things that should generally be covered in most loan agreements including:
- Who the borrower and lender are;
- When the loan begins and when it should be paid off;
- How much is being borrowed;
- If there are any restrictions in the way the money can be used;
- How frequently loan repayments will be made;
- What interest rate will apply to the loan and how it will be calculated;
- What happens if the borrower doesn’t make a repayment; and
- What happens if there’s a dispute over the loan.
Why MNG Lawyers
Frequently Asked Questions
No. A loan agreement doesn’t have to be in writing to be legally binding, but we recommend that you do document the arrangement and both parties sign it. A written loan agreement can help make sure that there’s no disagreement about what both the borrower and lender intended.