Are You Facing a Problem During a Commercial Loan Agreement? Get Legal Help

July 16, 2020    commerciallawyersblog   
Are You Facing a Problem During a Commercial Loan Agreement? Get Legal Help

A commercial loan agreement is a binding legal document that enumerates the roles and responsibilities of both the lender and the borrower, when they engage in a loan transaction. In most cases, the lender is a bank or a similar financial institution. The borrower is usually an individual or a business. In most cases, the commercial loan agreement is drafted by the lender, or in this case, the bank. To protect your financial interests during the period of the loan, you have to scrutinize each and every aspect of the commercial loan agreement. If you are not familiar with such documents, the best course of action is to engage the services of loan agreement lawyers.

Before getting into why you should elicit professional legal advice during the drafting and signing of a loan agreement, here is some important information that you should know about them.

The Essential Clauses

Here is a brief breakdown and explanation of the standard legal clauses that commercial lawyers would generally choose to include in a commercial loan agreement in Australia.

  1. Introductory Clause: The introductory clause is the mandatory first clause to any legally binding agreement. This clause will contain all the information and relevant details of the parties that are engaging in the loan transaction - namely the bank and you. Other information that is included in this clause are contacts, addresses, execution dates, etc.
  2. Interpretation Clause: The interpretation clause is added so that there is no confusion and ambiguity about the different terminology that is going to be used in the loan agreement.
  3. Condition Precedent Clause: The condition precedent clause is put in place to make sure that the borrower completes all the financial, administrative and legal formalities before they receive the loan from the lender. This clause further explains all these duties and responsibilities in detail, so that they’re accomplished smoothly.
  4. Representation And Warranty Clause: These clauses are put in place by the loan agreement lawyers working on behalf of the lender. The objective of these clauses is to ensure that all the information provided by the borrower to the lender is correct. For example, if the borrower provides incorrect or misleading information, then the representation and warranty clauses would permit the lender from withholding funds from them. If the lender discovers some discrepancies after the entire loan amount has been disbursed, then the lender can declare the loan to be the default, and demand repayment in either full or part.
  5. Loan Term Clause: The loan term clause enumerates additional information about the loan, such as the loan amount, the interest rate, the process of disbursement, repayment schedule, penalties, securities attached, etc. All of this information is outlined very clearly in the loan term clause of the agreement so that there are no ambiguities and conflicts later on after the disbursement.
  6. Covenant and Undertaking Clauses: The covenant and undertaking clause contains assurances made by the borrower to the lender, where they state that they will not engage in any behaviour that will harm their financial situation during the tenure of the loan. The covenant and undertaking clauses vary according to the outlook and personality of the lenders and the perceived risk on the borrower’s end.
  7. Confidentiality Clause: The inclusion of this clause by the commercial lawyers Perth has to offer depends on the nature of the entire financial transaction. This clause prohibits either party to disclose sensitive information to any third party, who wasn’t privy to the transaction in the first place. This clause isn’t mandatory, and its inclusion depends on the parties that are involved in the agreement.

Now that you know the basic aspects of a commercial loan agreement, here is some more information about why you need it in the first place. You will also be able to get some insights about how it’s the best decision to have a lawyer present who will represent you.

Why You Need A Loan Agreement

The lending of money is an extremely important affair, and it is very important to have paperwork in place that protects both the parties involved. Apart from enumerating and explaining the various terms and conditions associated with the loan, the agreement also serves as a proof of the loan itself. The loan agreement is primarily put in place to protect the interests of the party that is lending out its money, since this is the party that stands to face the biggest risk. Proof of the loan is important, because some borrowers try to get out of repayment by claiming that the loan was a gift or an endowment.

Even if you are just thinking of lending money out to someone you know like a relative or a close friend, it is best to have a loan agreement in place. You might think that it can make the situation awkward, but it is always better to be safe than to be sorry. The primary function of the commercial loan agreement is to protect the financial interests of the parties that are participating in it. To ensure that your interests are protected, you need to engage the services of loan agreement lawyers. There is no separate legal field for loan agreements, and these matters are mainly taken care of and overseen by commercial lawyers only.

Specific Areas You Should Remember

There are some key aspects of a commercial loan agreement, which you have to remember to agree on only in the presence of your commercial lawyers Perth. These aspects include the rate of interest, the default interest, prepayment options, securities and collateral, events of default, etc. If you are the borrower, make sure that all these items are only put in the agreement at your approval. If you are the lender, then you have to draft a fair commercial loan agreement that will protect your financial investment and be fair to the lender as well.

If you are thinking of getting into a loan transaction, then you should think of searching for “commercial lawyers Perth”, so that your financial interests can be well represented.


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