Loan agreement
A loan agreement or 'facilities agreement' is a contract 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).[1]
Types
Loan agreements are usually characterized either of two different ways: by the type of lender, or by the type of facility.
Categorizing loan agreements by lender usually simply sub-divides loans into:
Categorizing loan agreements by type of facility, usually results in two primary categories:
- term loans, which are repaid in set installments over the term
- revolving loans (or overdrafts) where up to a maximum amount can be withdrawn at any time, and interest is paid from month to month on the drawn amount.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 subcategorize 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:
- Parties to contracts with their addresses
- Definitions or interpretation provisions
- Facility and purpose[2]
- Conditions precedent to utilization
- Repayment provisions
- Prepayment and cancellation provisions
- Interest and interest periods
- Provisions dealing with gross-up in relation to any withholding imposed
- Increased cost formulae
- Payments provisions
- Representations of the borrower[3]
- Covenants of the borrower[4]
- 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
- Securitization provisions
- Amendments and waivers provisions
- Covenants relating to changes in parties
- Set-off clause
- Severability clause
- Counterparts clause
- Addresses for notices
- Language provisions
- Choice of law clause
- Forum selection clause
- Appointment of a process agent
See also
Footnotes
- ^ http://www.google.com/patents?hl=en&lr=&vid=USPAT5870721&id=fSEMAAAAEBAJ&oi=fnd&dq=%22Loan+agreement%22&printsec=abstract#v=onepage&q=%22Loan%20agreement%22&f=false
- ^ 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.
- ^ http://www.thelegalstop.co.uk/Business/Loan-Agreement.html
- ^ Such as a negative pledge.
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