Writing a Loan Agreement

Note: Want to skip the guide and go straight to the free templates? No problem - scroll to the bottom.
Also note: This is not legal advice.

Introduction

When it comes to taking out a loan, having a reliable agreement in place is crucial. A loan agreement is a legally binding contract between the borrower and lender that sets out all of the terms of the loan – its purpose, amount, repayment terms, consequences of defaulting and both parties’ rights and responsibilities.

Without such an agreement in place, those involved in the loan transaction are exposed to potential problems which may arise in future. The document outlines these details with clarity and secures protection for both parties; outlining payment schedules and interest rates as well as providing safeguards for lenders should the borrower fail to make payments, or for borrowers so as to prevent them from being taken advantage of by their lender.

Having a clarified loan agreement also helps avoid disputes between lender and borrower; outlining all of the expectations from either party ensures there are no misunderstandings or legal issues at hand. It’s important to keep in mind that this type of agreement differs from promissory notes which are documents that outline terms but do not require payment from the borrower; whereas a loan agreement binds the latter party into making payments according to said conditions.

Creating an effective and thorough document when making this kind of agreement is paramount – preferably with help from experienced individuals like those at Genie AI who provide free access to high quality legal templates without any expensive lawyer fees. Our step-by-step guidance makes creating such agreements straightforward without requiring any Genie AI account so you can ensure everyone involved is protected against potential problems down the line while having all expectations clear between parties involved. Read on below for our detailed guide on how best you can access our template library today!

Definitions (feel free to skip)

Creditor: A person or organization that lends money and will be repaid.
Debtor: A person or organization that borrows money and will make payments.
Interest rate: The percentage of a loan amount that must be paid in addition to the loan’s principal.
Fees: An amount of money charged for services or the use of something.
Default: When a borrower fails to make payments on a loan.
Consequences: The result of an action, either positive or negative.
Penalties: A punishment imposed for breaking a law or rule.
Document: A written or printed paper that provides information or evidence.
Binding: Something that requires a person to follow certain rules or laws.

Contents

• Identifying the parties involved in the loan agreement
• Creditor
• Debtor
• Determining the loan amount
• Establishing the loan’s interest rate
• Outlining any associated fees
• Establishing a timeline for repayment
• Discussing repayment plans
• Agreeing on a default and default consequences
• Drafting the loan agreement
• Reviewing the document with all involved parties
• Finalizing the document
• Signing the agreement

Get started

Identifying the parties involved in the loan agreement

• Determine who the creditor of the loan will be (the lender) and who the debtor will be (the borrower).
• Identify the exact legal names of both the creditor and debtor.
• Make sure that both parties are competent to enter into a legal agreement.
• Once you have identified the parties involved in the loan agreement, you can move on to the next step.

Creditor

• Identify the creditor in the loan agreement. This is the individual or entity who is lending the money.
• Make sure the creditor’s name is spelled correctly and that all pertinent contact information is included.
• Confirm that the creditor is legally allowed to enter into the loan agreement.
• When you have verified all the required information, you will know that you have completed this step and can move on to the next step.

Debtor

• Determine who the debtor is. This is the person or entity who is borrowing money from the creditor.
• Make sure the debtor is legally capable of entering into a loan agreement.
• Identify the debtor’s contact information, including name, address, and phone number.
• Obtain a valid government-issued identification document (such as a driver’s license or passport) from the debtor.
• Once the debtor has been identified and all necessary information has been provided, you can check this off your list and move on to the next step: determining the loan amount.

Determining the loan amount

• Determine the amount of money that you are loaning to the borrower and write it down
• Specify whether you are loaning a lump sum or multiple payments
• Include details about any collateral that may be used to secure the loan
• When you have determined the loan amount, you can include it in the loan agreement
• You will know that you have completed this step when you have finalized the loan amount and included it in the loan agreement

Establishing the loan’s interest rate

• Determine the type of interest rate that will be used for the loan (fixed, variable, etc.)
• Set an interest rate that both parties agree to
• Detail the interest rate in the loan agreement
• Include information on how interest is calculated and any associated penalties
• When complete, both parties should sign the agreement to indicate they agree to the interest rate
• Once the agreement is signed, the interest rate is set and you can move on to the next step.

Outlining any associated fees

• Determine if there are any associated fees related to the loan (e.g. late payment fees, processing fees, etc.)
• If so, outline each fee in the agreement and provide details on how much each fee will be
• Make sure each fee is reasonable and legal
• Include a clause in the agreement that states that the borrower is responsible for all associated fees
• Check off this step when all associated fees have been outlined in the loan agreement.

Establishing a timeline for repayment

• Determine the amount of time that the borrower has to repay the loan.
• Establish a timeline for repayment, including when payments are due, the amount of each payment, and the total number of payments.
• Draft the repayment schedule into the loan agreement.
• Make sure both parties understand and agree to the timeline for repayment.
• You can check this step off your list and move on to the next step once the timeline for repayment has been established and agreed upon by both parties.

Discussing repayment plans

• Discuss the repayment plan for the loan by considering factors like payment amount, the length of repayment period, payment schedule, and any fees associated with the loan
• If a borrower has a poor credit score and history, the lender may require a co-signer to guarantee the loan
• Determine if late payments will incur a fee, and include this language in the loan agreement
• If the borrower has difficulty making payments, discuss options like loan forbearance or refinancing

When you are finished discussing repayment plans, you can move on to agreeing on a default and default consequences.

Agreeing on a default and default consequences

• Discuss the consequences that will occur in the event of default.
• Detail what is considered a default and what will constitute a violation of the loan agreement.
• Decide who will bear the responsibility for any costs associated with a loan default, such as legal or collection fees.
• All parties should agree on the consequences in the event of a default, and these should be outlined in the loan agreement.
• Once all parties have agreed on the default and default consequences, you can move on to drafting the loan agreement.

Drafting the loan agreement

• Gather all relevant information such as loan amount, loan term, interest rate, repayment schedule, and other details
• Draft the loan agreement in a clear and concise manner, making sure all the necessary information is included
• Be sure to include any default consequences that were agreed upon in the first step
• Ensure that all parties involved in the loan agreement are included in the document
• When the loan agreement is complete, have all parties involved sign the document
• You can then move on to the next step of reviewing the document with all involved parties

Reviewing the document with all involved parties

• Make sure all parties have received the document and have had a chance to review it
• Ask parties to provide feedback and suggestions on the document
• Review any feedback or suggestions from parties and make changes as necessary
• Ensure that all parties are satisfied with the document
• Verify that all parties involved have signed the document
• Once all parties have signed the document, you can check off this step and move on to finalizing the document.

Finalizing the document

• Print the loan agreement and double-check all information
• Make sure all parties involved have initialed and signed the agreement
• Make sure the notary public has witnessed the signing and notarized the document
• Make sure the agreement has the original signatures of all involved parties
• Once all of the above has been completed, you’re ready to move on to the next step

Signing the agreement

• Have all parties involved in the loan agreement sign the document.
• Include their full names and sign in the presence of a witness.
• Make sure to use a pen with black ink for signatures.
• Have the witness sign, as well.
• When all parties and the witness have signed, the document is complete and ready for filing.

FAQ:

Q: How detailed does a loan agreement need to be?

Asked by John on June 6th, 2022.
A: A loan agreement should be as detailed as possible, covering all aspects of the loan arrangement that are important to you and the other party. This includes details such as the loan amount, repayment terms, interest rates, and any other conditions that are agreed upon. It is also important to include any additional clauses you feel are necessary to protect both parties.

Q: What happens if I don’t stick to the terms of a loan agreement?

Asked by Maria on June 23rd, 2022.
A: If you do not stick to the terms of a loan agreement, it is likely that the lender may take legal action against you in order to recover their money. Depending on the severity of your breach, this could include anything from court proceedings to repossession of any assets used as security for the loan.

Q: What is the difference between secured and unsecured loans?

Asked by David on February 28th, 2022.
A: The main difference between secured and unsecured loans is whether an asset (e.g. property) has been used as security for the loan. A secured loan means that if the borrower fails to make repayments the lender can claim ownership of the asset used as security. An unsecured loan does not require any assets to be used as security for the loan but typically has higher interest rates due to this increased risk for the lender.

Q: Are there any restrictions on who can lend or borrow money?

Asked by Sarah on April 15th, 2022.
A: In most countries there are legal regulations governing who can lend money and who can borrow money. For example in the UK, lenders must be authorised by the Financial Conduct Authority and borrowers must be over 18 years old and living in England or Wales in order to legally enter into a loan agreement. It is important to ensure that you are aware of these regulations before entering into a loan agreement with another party.

Q: How much interest should I expect to pay on a loan?

Asked by Benjamin on October 3rd, 2022.
A: The amount of interest you can expect to pay on a loan will depend on several factors such as the amount borrowed, your credit score and history, and any additional conditions you have agreed upon with the lender. Generally speaking, higher risk borrowers may pay a higher rate of interest while those with a better credit history may be able to access more favourable rates. It is important to shop around and compare different lenders before entering into a loan agreement in order to get the best rate available for your particular circumstances.

Q: Are there any fees associated with taking out a loan?

Asked by Emma on January 21st, 2022.
A: Yes, there may be fees associated with taking out a loan such as arrangement fees or early repayment fees that should be taken into consideration when deciding whether or not to take out a loan. It is important to read all documentation carefully before signing a loan agreement in order to ensure that you are aware of all associated costs before making your final decision.

Q: What should I consider when drafting a loan agreement?

Asked by Jacob on May 4th, 2022.
A: When drafting a loan agreement it is important to consider all aspects of the arrangement such as repayment terms, interest rates, collateral requirements (if applicable), any additional clauses or conditions that need to be included in order to protect both parties involved in the agreement, and any potential exit strategies in case one party breaches their obligations or otherwise defaults on their payments. It is also important to consider any potential legal restrictions or regulations related to lending and borrowing money in your particular jurisdiction so that your loan agreement is legally enforceable should it ever need to be enforced in court.

Q: What happens if I can’t make my payments according to my loan agreement?

Asked by Joshua on August 9th, 2022.
A: If you cannot make payments according to your loan agreement then it is important that you contact your lender immediately so that they are aware of your situation and can discuss alternative options with you such as restructuring your repayments or extending your repayment period if necessary. If you fail to make payments according to your agreed terms then it is likely that legal action will be taken against you in order for your lender to recover their money so it is important that you act quickly if you find yourself unable to meet your obligations under the agreement.

Q: Can I negotiate better terms after signing a loan agreement?

Asked by Michael on July 12th, 2022.
A: Once a loan agreement has been signed then it is difficult (though not impossible) for either party involved in the arrangement to renegotiate better terms without mutual consent from both parties involved in the agreement. However if circumstances have significantly changed since signing then it may be possible for both parties involved in the arrangement to agree upon new terms which reflect this change in circumstances - though this will ultimately depend upon how willing both parties are willing negotiate and come up with an amicable solution which works for both parties involved in the arrangement.

Q: Does my business need a specific type of loan agreement?

Asked by Matthew on December 30th, 2022.
A: Generally speaking most businesses will benefit from having some form of written contract outlining any loans they may have taken out from lenders; however depending upon your particular industry sector/business model there may be more specific types of agreements which could better suit your individual needs (e.g.: SaaS companies may benefit from having an equity-based funding contract rather than a traditional debt-based one). It is therefore best practice that you research what type of contract would work best for your business before entering into any formal agreements with third parties - this way you can ensure that all relevant legal requirements and regulations are met while also protecting yourself against potential future disputes or issues arising from an incorrect type of contract being used at an earlier stage of negotiations/contracting process with third parties/lenders etc…

Q: Are there differences between US/UK/EU laws when writing a loan agreement?

Asked by Christopher on March 19th, 2022.
A: Yes - whilst many aspects related to writing a legally binding contract will remain similar across different jurisdictions (e.g.: consideration needs for contracts being enforceable) there can potentially be differences between US/UK/EU laws which could affect certain areas related writing and entering into a legally binding contract with another party - such as minimum age requirements for borrowers or lenders within each jurisdiction (e.g.: US states have different minimum age requirements) or differences related what types of assets can be used as security depending upon which jurisdiction you operate within etc… It is therefore best practice that when drafting or negotiating any contracts related lending/borrowing money within these jurisdictions that local solicitors are consulted in order ensure full compliance with relevant laws and regulations across different jurisdictions/countries etc…

Example dispute

Suing a Lender Over a Loan Agreement:

• Plaintiff can sue lender if a loan agreement is breached.
• The plaintiff must be able to prove that the lender breached a term of the loan agreement or failed to perform a duty required by the agreement.
• The plaintiff may be able to seek monetary damages, such as the return of money paid out of pocket due to the breach.
• The plaintiff may also seek an injunction to prevent the lender from further breaching the agreement.
• If the plaintiff can prove that the lender’s actions were intentional or reckless, they may be able to seek punitive damages.
• If the loan agreement was unconscionable the plaintiff may be able to have it voided or renegotiated.
• Settlement may be reached through mediation or arbitration.
• In some cases, a judge may order the lender to pay damages and/or take specific actions to remedy the breach of contract.

Templates available (free to use)

Borrower Board Meeting Minutes To Approve A Loan Agreement
Borrower Board Meeting Minutes To Approve A Loan Agreement And Debenture
Borrower Board Meeting Minutes To Ratify Loan Agreement
Borrower Board Meeting Minutes To Ratify Loan Agreement And Debenture
Borrowers Breach Waiver And Consent Request To Lender Loan Agreement
Borrowers Waiver Request To Lender Loan Agreement
Consumer Loan Agreement
Convertible Loan Agreement
Convertible Loan Agreement Heads Of Terms
Credit Loan Agreement
Development Document Variation Consent Request Loan Agreement Borrower To Lender
Equipment Loan Agreement
Esop Loan Agreement
Facility Agreement Bilateral Loan Agreement
Financial Covenants For Real Estate Loan Agreements
Intercompany Loan Agreement
Intercompany Revolving Loan Agreement
Legal Opinion On Foreign Law Unsecured Bilateral Loan Agreement
Lenders Conditions Precedent Satisfaction Letter Loan Agreement
Letter Loan Agreement
Letter To Waiver Condition Precedent Rights Under A Loan Agreement
Loan Agreement And Promissory Note
Loan Agreement Anti Corruption Provisions
Loan Agreement Between Individuals Unsecured
Loan Agreement For Project Finance Representations And Warranties
Loan Agreement Lenders Reservation Of Rights Letter
Loan Agreement To Purchase A Second Hand Ship Precedent Conditions
Master Loan Agreement
Modification Of Loan Agreement
Project Finance Conditions Precedent For Loan Agreement
Project Loan Agreement
Provisions For A Loan Agreement In The Event Of A Change In Circumstance Material Adverse Change
Sample Equipment Loan Agreement Lambert
Securities Loan Agreement
Shareholder Loan Agreement
Short Form Directors Loan Agreement
Short Term Loan Agreement
Simple Loan Agreement Single Lender Single Borrower
Simple Loan Agreement To Employee Benefit Trust Ebt
Standard And Simple Loan Agreement Intra Group
Standard Capital Expenditure Restriction Clause For Loan Agreements
Standard Deed Of Novation Transfer Of Loan Agreement
Standard Fee Letter Loan Agreement
Standard Financial Covenants For Loan Agreement
Standard Loan Agreement
Standard Loan Agreement For Intra Group Reorganisations Asset Or Share Sale
Standard On Demand Loan Agreement Intra Group
Standard Revolving Loan Agreement Provisions
Sterling Term Loan Agreement Lending Syndicate To Corporate Borrower
Subordinate Loan Agreement
Subordinated Loan Agreement
Supplemental Loan Agreement
Term Loan Agreement
Term Sheet For Loan Agreement By Lending Syndicate Financing A Private Company Acquisition Sonia Or Boebr
Term Sheet For Loan Agreement By Single Lender Financing A Private Company Acquisition Lbr Or Boebr
Termination Of Loan Agreement

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