- Loan agreement
A loan agreement is a
contractentered 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 fraudsor equivalent legislation).
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:
* bilateral loans
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overdrafts) where up to a maximum amount can be withdrawn at any time, and interest is paid from month to month on the drawn amount.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 loanor 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:
# Parties to contracts with their addresses
# Definitions or interpretation provisions
# Facility and purpose [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.]
# Conditions precedent to utilisation
# Repayment provisions
# Prepayment and cancellation provisions
# Interest and interest periods
# Provisions dealing with
gross-upin relation to any withholdingimposed
# Increased cost formulae
# Payments provisions
Representations of the borrower
# Covenants of the borrower [Such as a
# Events of default
# Remedies in the event of default
# Provisions for penalties and liquidated damages
# For syndicated loans, provisions relating to the facility agent and security agent and voting of the lenders
# Formulae for calculations
# Provisions for fees of the lenders
# Provisions for expenses
# Amendments and waivers provisions
# Covenants relating to changes in parties
# Set-off clause
# Addresses for notices
# Language provisions
Choice of law clause
Forum selection clause
# Appointment of a
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