Simple Loan Agreement - Best Practices to Know

 What is a Simple Loan?

A Simple Loan Agreement is an agreement between two persons or entities in terms of which monies are lent from the lender to the borrower for repayment either with interest or without. 

Whether you are a single person giving a personal loan to a friend or a commercial bank lending to its client, it is advisable to have a legal loan contract that spells out the terms of the loan. To ensure all areas are covered in the document, you need to follow these best practices.

What  Loan Agreement comprises

It compromises an expert team of the contract lawyers that will custom fit your Loan Agreement to the unique needs of your business by setting out, among others, how the loan is advanced, is repaid and will be managed, coupled with interest rates and the breach provisions if the loan is not repaid.

What to Include

Title: The title of the loan that indicates document and lets anyone who reads it understand what it is. 

Loan Parties and business: Both the need to be mentioned in the document. This requires the full legal name is used as well as a physical address and contact details like phone number and email.

Dates: The date on which the loan is offered needs to be included 

Amount: The amount of money being lent should be indicated as well as the interest expected, the total sum to be paid at the end of the term as well as installments that will be made.

If loan is created for the website development that amount is added within website development contract for loan. 

Length of Term: The borrower needs to know how long they have to complete payment of the loan.

Collateral: If any collateral has been agreed upon, it should be mentioned.

Default Provisions: Sometimes a borrower may default on an installment, such a situation needs to be addressed in the agreement along with possible action that may be taken.

Cancelation Policy: Most banks have a cancellation policy and this needs to be stated and explained in the agreement.

Jurisdiction: Since different states have different laws on lending and borrowing, it is important to state the laws that apply to the agreement.

Signature: There should be space provided for the signatures of both parties as well as a witness or two.

They also can make template shareholders agreement for the shares if added in the loan agreement too. 

Terms and Conditions: Some lenders may have certain conditions that need to be met before the loan can be advanced. For example, if the loan is for the construction of a commercial building, they may require a certain percentage of the work to be completed before more money is imbursed. Such conditions need to be included in the document.

All the details are mandatory and explained to both lender and borrower at the same time. 

Source: https://loftlegal.com/service/loan-agreement-uk/