A loan agreement is a contract entered into between 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).
What are some common types of loan agreements?
Loan agreements are usually characterised 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:
bilateral loans
syndicated loans
Categorizing loan agreements by type of facility, usually results in two primary categories:
term loans, which are repaid in set instalments over the term, or revolving loans (or overdrafts) where up to a maximum amount can be withdrawn at any time, and interest is paid from month to month on the drawn amount.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 subcategorise on whether the loan is a secured loan or an unsecured loan, and whether the rate of interest is fixed or floating.
What is in a 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
Conditions precedent to utilisation
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
Covenants of the borrower
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