Loan Agreements in AustraliaA loan agreement (or facility agreement), sets out the terms on which money has been lent. It is an essential legal document to enforce the terms of the loan and to show that it was, in fact, a loan and not a gift. Show
Unsecured and Secured Loan AgreementsThere are two types of loan agreements: unsecured and secured loan agreements. Unsecured means there is no security against the loan should the borrower end up in default. A secured loan, on the other hand, ensures the lender can recover its money by taking possession of the borrower’s asset(s), selling them and using the sales proceeds to repay the debt. The majority of loans, such as home loans, are secured against an asset. Division 7A Loan AgreementsA Division 7A Loan Agreement is used where a private/proprietary limited company is lending to one single borrower, and that borrower is a director, shareholder or associate of a director or shareholder of the lending company. The applicable legislation for this type of loan agreement is Section 109N of the Income Tax Assessment Act 1936 (Cth). Division 7A applies to loans and payments made on or after 4 December 1997. However, if a loan or payment was made before that date and is subsequently varied or forgiven after that date then Division 7A may apply from the date of variation or forgiveness Key Considerations
Loan Agreement ClausesStructure of a Loan ContractA loan agreement contract is a complex and sophisticated document. While each loan contract is different, each contract will usually contain four main sections:
Common clauses include: InterestAs one of the most important clauses, a fixed-fee interest rate or floating fee interest rate will set the rate of interest payable on the loan. A fixed fee interest rate is set at a given number that will not adjust during the term of the agreement unless agreed by both parties. A floating fee will be based on an interest margin added to a benchmark rate. In Australia, this will be the bank bill swap rate (BBSW), which adjusts with the Reserve Bank of Australia’s cash rate target. Default InterestA default interest clause will apply where an owing amount is not paid when it falls due. This rate should accurately reflect the cost to the lender of the amount not being paid when due. Parties may agree that the lender can capitalise any part of the interest which becomes due and payable and is not paid on its due date. Loan ClauseThe operative loan clause sets out when and how money is to be advanced by the lender to the borrower, the amount of money being advanced, and what conditions have to be satisfied prior to money being advanced, if any. Repayment ClauseA repayment clause sets out how and when the loan is to repaid by the borrower to the lender. Frequently Asked Questions about Loan AgreementsQ: What is a bilateral loan or syndicated loan? Q: Does
the National Credit Code (NCC) apply to my Loan Agreement? Q: What is a lump-sum payment? Q: What is a principal and interest payment? Q: Are representations and warranties important in loan agreements? How can LegalVision help me?LegalVision assists businesses with tailored online legal advice, including drafting and reviewing loan agreements. Call LegalVision today on 1300 544 755. What document is a promise to repay the loan?Promissory notes may also be referred to as an IOU, a loan agreement, or just a note. It's a legal lending document that says the borrower promises to repay to the lender a certain amount of money in a certain time frame.
Is a promissory note the same as a loan?Standalone promissory notes are typically shorter than loan agreements, and although standalone promissory notes may contain some of the same provisions, they typically impose fewer obligations on the borrower.
What is an agreement between the borrower and the bank that the loan will be paid back in a specific amount of time at a specific interest rate?Note - A written document in which a borrower promises to repay a loan to a lender at a stipulated interest rate within a specified time period or upon demand. Also called a promissory note.
What type of contract is a loan agreement?A loan agreement, sometimes used interchangeably with terms like note payable, term loan, IOU, or promissory note, is a binding contract between a borrower and a lender that formalizes the loan process and details the terms and schedule associated with repayment.
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