Loan agreement

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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).

Contents

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  • revolving loans (or overdrafts) where up to a maximum amount can be withdrawn at any time, and interest is paid from month to month on the drawn amount.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.

Contents of Loan agreement

Forms of loan agreements vary tremendously from country to country, but characteristically a professionally drafted commercial loan agreement will incorporate the following terms:

  1. Parties to contracts with their addresses
  2. Definitions or interpretation provisions
  3. Facility and purpose[1]
  4. Conditions precedent to utilisation
  5. Repayment provisions
  6. Prepayment and cancellation provisions
  7. Interest and interest periods
  8. Provisions dealing with gross-up in relation to any withholding imposed
  9. Increased cost formulae
  10. Payments provisions
  11. Representations of the borrower
  12. Covenants of the borrower[2]
  13. Events of default
  14. Remedies in the event of default
  15. Provisions for penalties and liquidated damages
  16. For syndicated loans, provisions relating to the facility agent and security agent and voting of the lenders
  17. Formulae for calculations
  18. Provisions for fees of the lenders
  19. Provisions for expenses
  20. Securitization provisions
  21. Amendments and waivers provisions
  22. Covenants relating to changes in parties
  23. Set-off clause
  24. Severability clause
  25. Counterparts clause
  26. Addresses for notices
  27. Language provisions
  28. Choice of law clause
  29. Forum selection clause
  30. 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.
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