LOAN AGREEMENT

WHAT IS A LOAN AGREEMENT?

► A loan agreement is the document in which a lender – usually a bank or other financial institution – sets out the terms and conditions under which it is prepared to make a loan available to a borrower. Loan agreements are often referred to by their more technical name, "facilities agreements" - a loan is a banking "facility" offered by the lender to its customer.

PURPOSE OF AN AGREEMENT

► The main purpose of a loan agreement is to clearly define what both parties are agreeing to in terms of establishing the working relationship and what responsibilities each party covenants to perform for the duration of the loan.

► In many countries, the establishment of a loan agreement must meet standards set by national and local laws. This arrangement is usually to the advantage of both the lender and the debtor.

TYPES OF LOAN AGREEMENT

A loan agreement is of two types:

► Secured loan agreement.

► Unsecured loan agreement.

ISSUES ADDRESSED AND DEFINED IN LOAN AGREEMENT

► There are a number of issues that are addressed and defined even in the simplest of loan agreements.

► Any fees as well as the applicable rate of interest is also specified, making it possible to determine the final cost associated from the loan.

► The repayment terms are also defined, as well as how the interest rate is applied.

► Agreements usually identify any penalties that may be involved with paying the loan off ahead of schedule.

HOW IS LOAN AGREEMENT ENTERED INTO?

The following are the steps to enter into a loan agreement:

► Optimize your credit report.

► Establish a stable source of income.

► Gather documentation.

► Research loan types.

► Determine the amount of money you need to borrow.

► Find a lender.

► Enter into the agreement.

NOTE !!!

► A Loan Agreement only defines the terms and conditions of a loan; in order to create security for the sum borrowed a separate agreement is also required. A Debenture is a document creating security; it secures a loan using the borrower's assets.

THANK YOU !!