How To Prepare A Loan Agreement? What Key Points Should Be Included In It?

February 8, 2021    commerciallawyersblog   
How To Prepare A Loan Agreement? What Key Points Should Be Included In It?

A facility or loan agreement is complex documents that provide protects to two parties at the same time. In the majority of the cases, the lender takes the responsibility to create a loan agreement. This means the burden of providing all the terms of the agreements falls on the side of the lending party. Before a loan agreement is made, one must stay well aware of all the components so that he/she do not miss out anything important. 

Doing so will help in protecting them during the lifetime of the loan. Individuals can also take the help of commercial litigation lawyers who have plenty of knowledge about loan agreement if they do not possess much knowledge about it. 

How to create a loan agreement?

When it comes to creating a loan agreement, the first thing one needs to do is provide all the basic information. Doing so will help in identifying all the parties who are agreeing to all the terms of the agreement. There is a section where one needs to provide the details on who the lender and the borrower is. 

If the lender and borrower are people, their legal name is required. But if it’s a business, the designation of the entity or the business must be included. Individuals must also provide their full address, and if there is more than one borrower, he/she needs to provide information on both of them within the loan agreement. 

Once the information of all the individuals involved within a loan agreement is provided, he/she must outline the specifics surrounding the loan. These specifics are interest information, transaction information and payment information. Information about prepayments can also get included. It's only possible if the borrowers want to pay off the loan as early as possible.

What Are The Crucial Points To Include Within A Loan Agreement?

To know about the terms of points that should be on a loan agreement, he/she must get in touch with the reliable and best commercial lawyers Perth who are experts in such matters. They have plenty of knowledge about loan agreements and will help their clients to gain a proper understanding of the important points. Given below are some of the most essential points that a loan agreement should carry. Check it out!

  • Interest: 

The interest clause within a loan agreement stands out as a crucial factor as it helps in setting out the interest rate of the loan. Individuals will come across two types of interest rates, which are floating fee rates and fixed fee rates. The fixed-rate is set within a given number and will receive no changes during the loan, and the fixed rate is around 8%. On the other hand, the floating rate is based on the benchmark rate and the interest rate margin, which is 3 % + the benchmark rate. In Australia, the bank bill swap rate is used as the benchmark rate. It moves with the cash rate target of Reserve Bank of Australia.

  • Prepayment:

A loan agreement needs to include prepayment to enable the borrower to pay up the loan early. Doing so will help in making the agreement much more flexible. The prepayments are allowed during the end of an interesting period. It will help in avoiding the payment from the breakage cost. On several occasions, the loan agreement needs mandatory prepayment as well. For information, contacting the loan agreement lawyers will make the process easier. Taking their help will enable an individual to prepare the loan agreement accordingly. 

  • Uncommitted Or Committed Loan Agreement:

A loan can stand out to be either uncommitted or committed. When the loan stands out as a committed one, the lender becomes obliged contractually to lend the amount to the borrower once they satisfy the condition precedents or CPs. These CPs will then set out within the loan agreement’s schedule. But if the loan is uncommitted, there is no need for a CPs. The best way to understand more about the committed and uncommitted agreement is through the loan agreement lawyers so that he/she will face no issues when preparing for a loan agreement. 

  • Syndicated Or Bilateral:

All individuals must check whether the loan is syndicated or bilateral. Bilateral loans stand out as the loans, which gets provided to the borrower through one lender. On the other hand, syndicated loans have more than one lender who provides a loan to one or two borrowers. The bilateral loans stand out as much more common within basic and simple transactions. Also, a loan only gets syndicated when the lenders are an investment or corporate banks, and the amount available for lending is pretty significant. 

  • Default Interest:

Well-drafted loan agreements must have default interest mentioned on them. This default interest clause will help in increasing interest rates. It's payable for amounts, which gets paid when they are due. The default rate should reflect accurately towards the lender, and if the rate is pretty excessive it will get deemed in the form of a penalty rate. This will enable the rate to become enforceable. 

  • Events Of The Default:

One of the main factors about loan agreements is whether it’s repayable on the fixed term or repayable on demand. When the loan stands out as a repayable on demand, there is no need for the events of default clause. The lender can recall the loan according to their will, and the borrower doesn’t need to stay obliged contractually to maintain several covenants. But if the loan is on fixed term, the default of default is required. The main events of default, which one needs to watch out for are insolvency, breach of the loan agreement, cross-default and non-payment. 

Parting Thoughts

Loan agreements stand out as a vital thing. It’s because when an individual borrows money, he/she is making a massive commitment to the lender. Doing so will help in creating obligations and rights for the borrower and the loan provider. To learn and understand more about the loan agreement, taking professional help will be the right thing. People who specialize in such areas will provide in-depth information and details on it.

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