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Information about Loan Agreement

A loan agreement is a contract entered into between which regulates the terms of a loan. Loan agreements usually relate to loans of cash, but market specific contracts are also used to regulate securities lending.

Loan agreements are usually in written form, but there is no legal reason why a loan agreement cannot be a purely oral contract (although in some countries this may be limited by the Statute of frauds or equivalent legislation).

Types

Loan agreements are usually characterised either of two different ways: by the type of lender, or by the type of facility.

Categorising loan agreements by lender usually simply sub-divides loans into: Categorising loan agreements by type of facility, usually results in two primary categories:
  • term loans, which are repaid in set instalments over the term, or
  • revolving loans (or overdrafts) where up to a maximum amount can be withdrawn at any time, and interest is paid from month to month on the drawn amount.
Within these two categories though, there are various subdivisions such as interest-only loans, and balloon payment loans. It is also possible to subcategorise on whether the loan is a secured loan or an unsecured loan, and whether the rate of interest is fixed or floating.

Characteristic terms

Forms of loan agreements vary tremendously from country to country, but characteristically a professionally drafted commercial loan agreement will incorporate the following terms:
  1. Interpretation provisions
  2. Facility and purpose[1]
  3. Conditions precedent to utilisation
  4. Repayment provisions
  5. Prepayment and cancellation provisions
  6. Interest and interest periods
  7. Provisions dealing with gross-up in relation to any withholding imposed
  8. Increased cost formulae
  9. Payments provisions
  10. Representations of the borrower
  11. Covenants of the borrower[2]
  12. Events of default
  13. For syndicated loans, provisions relating to the facility agent and security agent and voting of the lenders
  14. Formulae for calculations
  15. Provisions for fees of the lenders
  16. Provisions for expenses
  17. Securitization provisions
  18. Amendments and waivers provisions
  19. Covenants relating to changes in parties
  20. Set-off clause
  21. Severability clause
  22. Counterparts clause
  23. Addresses for notices
  24. Language provisions
  25. Choice of law clause
  26. Forum selection clause
  27. Appointment of a process agent

See also

Footnotes

1. ^ Purpose provisions serve a variety of purposes in different jurisdictions, but they are often used to seek to impose a Quistclose trust on the loan proceeds if the stated purpose of the loan becomes impossible.
2. ^ Such as a negative pledge.
Contract Law
Part of the common law series
Contract
Contract formation
Offer and acceptance  · Mailbox rule
Mirror image rule  · Invitation to treat
Firm offer  · Consideration
Defenses against formation
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A loan is a type of debt. All material things can be lent but this article focuses exclusively on monetary loans. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the and the .
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Cash usually refers to money in the form of liquid currency, such as banknotes or coins.

Etymology

The English word cash is of the French , itself a borrowing of the Provençal caissa.
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In finance, securities lending or stock lending refers to the lending of securities by one party to another. The terms of the loan will be governed by a "Securities Lending Agreement", which, under U.S.
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An oral contract is a contract that terms of which have been agreed by spoken communication, in contrast to a written contract, where the contract is a written document. There may be written, or other physical evidence, of an oral contract – for example where the parties
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Contract Law
Part of the common law series
Contract
Contract formation
Offer and acceptance  · Mailbox rule
Mirror image rule  · Invitation to treat
Firm offer  · Consideration
Defenses against formation
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A syndicated loan (or "syndicated bank facility") is a large loan in which a group of banks work together to provide funds for a borrower. There is usually one lead bank (the "Arranger" or "Agent") that takes a percentage of the loan and syndicates the rest to other banks.
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overdraft occurs when withdrawals from a bank account exceed the available balance which gives the account a negative balance - a person can be said to have gone "overdrawn".
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An interest-only loan is a loan in which for a set term the borrower pays only the interest on the principal balance, with the principal balance unchanged. At the end of the interest-only term the borrower may enter an interest-only mortgage, pay the principal, or (with some
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A balloon payment mortgage is a mortgage which does not fully amortize over the term of the note, thus leaving a balance due at maturity.[1] The final payment is called a balloon payment because of its large size.
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A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the loan.
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This article or section needs copy editing for grammar, style, cohesion, tone and/or spelling.
You can assist by [ editing it] now. A how-to guide is available, as is general .
This article has been tagged since February 2007.
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A gross up clause is a provision in a contract which provides that all payments must be made in the full amount, free of any deductions or withholdings, and without exercising any right of set-off.
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Withholding, in general, usually refers to a deduction of money (as 'withholding tax') from an employee's wages or salary by an employer, for projected or actual Income tax liabilities, see:
  • PAYE (United Kingdom, Ireland, Australia and New Zealand)

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Representation can refer to:
  • Representation (politics), one's ability to influence the political process
  • Representative democracy
  • Representation (arts), the depiction and ethical concerns of construction in visual arts and literature.

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In finance, a Borrower is the party in a loan agreement which receives money or other instrument from a lender and promises to repay the lender in a specified time.
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In finance, default occurs when a debtor has not met its legal obligations according to the debt contract, e.g. it has not made a scheduled payment, or has violated a loan covenant (condition) of the debt contract.
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Securitization is a structured finance process in which assets, receivables or financial instruments are acquired, classified into pools, and offered as collateral for third-party investment.
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In law, a set-off is a statutory defence to the whole or to a portion of a plaintiff's claim. It had no existence under the English common law, being created by 2 Geo.'II. c. 22 for the relief of insolvent debtors, although set-off was recognised in equity.
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The severability clause (sometimes referred to as a salvatorius clause, from the Latin word salvatorius) is the name for a special clause that regulates the legal consequences or the applicability of the remaining clauses of a contract when some clauses of a
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Counterparts can refer to:
  • Counterparts (album), an album by Rush
  • "Counterparts", a short story from Dubliners by James Joyce
  • Counterparts, novel written by the American writer and filmmaker Gonzalo Lira

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choice of law clause or proper law clause in a contract is one in which the parties specify which law (i.e. the law of which state or nation if it only has a single legal system) will be applied to resolve any disputes arising under the contract.
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forum selection clause in a contract with a Conflict of Laws element allows the parties to agree that any litigation resulting from that contract will be initiated in a specific forum.
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A process agent is a representative upon whom court papers may be served. They typically represent carriers or freight forwarders, as a process agent can act to serve as a point of contact and a legal address for contract purposes in a country where the actual entity does not have
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Debt is that which is owed; usually referencing assets owed, but the term can cover other obligations. In the case of assets, debt is a means of using future purchasing power in the present before a summation has been earned.
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A cleanup clause is a contractual provision in a loan agreement which provides that all loans must be repaid within a specified period, after which no further loans will be made available to the debtor for a specified "cleanup" period. It may also refer to revolving line of credit.
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A Quistclose trust is a specific type of trust in common law jurisdictions which arises in relation to sums which are advanced by way of credit to a person for that person's own use, but for a specific purpose.
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A negative pledge is a provision in a contract which prohibits a party to the contract from creating any security interests over certain property specified in the provision.
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