The Loan Agreement: Elements, boilerplate template, and optional clauses
What is a Loan Agreement?
A Loan Agreement is a legally binding document that outlines the terms and conditions of a loan between a lender and a borrower. It specifies the amount of the loan, the interest rate, the repayment schedule, and any other relevant details such as collateral requirements and fees. A Loan Agreement is used to ensure that both parties understand their obligations and to provide a framework for resolving disputes if they arise.
What are the elements of a typical Loan Agreement?
- Parties: The Loan Agreement begins by identifying the parties involved in the loan transaction, including the lender and the borrower.
- Purpose of the Loan: The Agreement should describe the purpose of the loan, including the amount of the loan, the intended use of the loan proceeds, and any collateral that the borrower is offering to secure the loan.
- Repayment Terms: The Loan Agreement should outline the terms of repayment, including the amount of each payment, the frequency of payments, the interest rate, and the due date for each payment. The Agreement may also include provisions for prepayment, late fees, and default interest.
- Security and Collateral: If the loan is secured, the Loan Agreement should describe the collateral that the borrower is offering as security for the loan. This may include real estate, personal property, or other assets.
- Representations and Warranties: The Loan Agreement should include representations and warranties made by the borrower regarding their financial condition, creditworthiness, and ability to repay the loan.
- Conditions Precedent: The Loan Agreement may include conditions precedent, which are conditions that must be satisfied before the lender is obligated to make the loan. This may include requirements for the borrower to provide certain documentation, obtain insurance, or meet certain financial ratios.
- Events of Default: The Loan Agreement should specify the events that would trigger a default under the loan, such as failure to make payments, breach of representations and warranties, or insolvency. The Agreement should also outline the lender’s rights and remedies in the event of a default.
- Governing Law and Jurisdiction: The Loan Agreement should specify the governing law and jurisdiction that will apply to any disputes arising under the Agreement.
- Fees and Expenses: The Loan Agreement should specify any fees or expenses associated with the loan, such as origination fees, appraisal fees, or legal fees.
- Signatures: The Loan Agreement should be signed by both the lender and the borrower to indicate their agreement to the terms and conditions set forth in the Agreement.
The following boilerplate template can be used on SimpleSignRequest.com
This Loan Agreement (“Agreement”) is entered into on [date] between [lender name], a [state] corporation with its principal place of business at [address] (“Lender”), and [borrower name], a [state] corporation with its principal place of business at [address] (“Borrower”).
- Loan Amount and PurposeLender agrees to lend Borrower the principal amount of [loan amount] (“Loan”), for the purpose of [loan purpose]. Borrower agrees to use the Loan solely for this purpose.
- Repayment TermsBorrower agrees to repay the Loan to Lender in [number of payments] equal installments of [amount of each payment], beginning on [date of first payment], and continuing on the [day of the month] of each month thereafter until the Loan is fully repaid. The interest rate on the Loan is [interest rate]% per annum.
- Security and CollateralThe Loan is secured by [collateral description], which shall remain the property of Borrower until default under this Agreement.
- Representations and WarrantiesBorrower represents and warrants that it has the authority to enter into this Agreement and to borrow the Loan; that it will use the Loan solely for the purpose stated in Section 1; that it is not in default under any other loan or financial agreement; and that it is solvent and able to repay the Loan in accordance with this Agreement.
- Conditions PrecedentThe obligation of Lender to make the Loan is subject to the satisfaction of the following conditions precedent: [condition precedent 1] [condition precedent 2] [condition precedent 3]
- Events of DefaultThe following shall constitute events of default under this Agreement: [default event 1] [default event 2] [default event 3]
- RemediesIn the event of a default under this Agreement, Lender may exercise any or all of its rights and remedies under applicable law, including but not limited to acceleration of the Loan, foreclosure on the collateral, and pursuit of any other available legal or equitable remedies.
- Governing Law and JurisdictionThis Agreement shall be governed by and construed in accordance with the laws of the State of [governing law]. Any disputes arising under this Agreement shall be resolved in the courts of the State of [jurisdiction].
- Fees and ExpensesBorrower agrees to pay all fees and expenses associated with the Loan, including but not limited to appraisal fees, recording fees, and legal fees.
- Entire AgreementThis Agreement constitutes the entire understanding between the parties and supersedes all prior negotiations, understandings, and agreements between the parties with respect to the Loan.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
What other clauses might be found in a typical Loan Agreement?
- Prepayment Clause: This clause allows the borrower to prepay the Loan, either in whole or in part, without incurring any prepayment penalty or fee.
- Late Payment Clause: This clause specifies the amount of any late fees that will be charged if the borrower fails to make a payment on time.
- Default Interest Clause: This clause allows the lender to charge a higher interest rate in the event of a default under the Loan Agreement.
- Cross-Default Clause: This clause provides that a default under another loan or financial agreement entered into by the borrower will constitute a default under the Loan Agreement.
- Acceleration Clause: This clause allows the lender to accelerate the maturity of the Loan in the event of a default by the borrower.
- Assignment Clause: This clause allows the lender to assign its rights under the Loan Agreement to another party, such as a bank or other financial institution.
- Confidentiality Clause: This clause requires the borrower to keep all information related to the Loan and the Loan Agreement confidential.
- Governing Law Clause: This clause specifies the governing law that will apply to the Loan Agreement.
- Jurisdiction Clause: This clause specifies the jurisdiction in which any disputes arising under the Loan Agreement will be resolved.
- Waiver Clause: This clause provides that any waiver of a breach of the Loan Agreement by the lender will not constitute a waiver of any subsequent breach by the borrower.