A loan agreement is a contract

Contract

A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...

 entered into between which regulates the terms of a loan

Loan

A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower....

. Loan agreements usually relate to loans of cash

Cash

In common language cash refers to money in the physical form of currency, such as banknotes and coins.In bookkeeping and finance, cash refers to current assets comprising currency or currency equivalents that can be accessed immediately or near-immediately...

, but market specific contracts are also used to regulate securities lending

Securities lending

In finance, securities lending or stock lending refers to the lending of securities by one party to another. The terms of the loan will be governed by a "Securities Lending Agreement", which requires that the borrower provides the lender with collateral, in the form of cash, government securities,...

.

Loan agreements are usually in written form, but there is no legal reason why a loan agreement cannot be a purely oral contract

Oral contract

An oral contract is a contract the terms of which have been agreed by spoken communication, in contrast to a written contract, where the contract is a written document...

 (although in some countries this may be limited by the Statute of frauds

Statute of frauds

The statute of frauds refers to the requirement that certain kinds of contracts be memorialized in a signed writing with sufficient content to evidence the contract....

 or equivalent legislation).

Types

Loan agreements are usually characterised either of two different ways: by the type of lender, or by the type of facility.

Categorising loan agreements by lender usually simply sub-divides loans into:

• bilateral loans
• syndicated loan
  Syndicated loan
  A syndicated loan is one that is provided by a group of lenders and is structured, arranged, and administered by one or several commercial banks or investment banks known as arrangers....
  
  s

Categorising 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 overdraft
  Overdraft
  An overdraft occurs when money is withdrawn from a bank account and the available balance goes below zero. In this situation the account is said to be "overdrawn". If there is a prior agreement with the account provider for an overdraft, and the amount overdrawn is within the authorized overdraft...
  
  s) 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 loan

Interest-only loan

An interest-only loan is a loan in which, for a set term, the borrower pays only the interest on the principal balance, with the principal balance unchanged...

s, and balloon payment

Balloon payment mortgage

A balloon payment mortgage is a mortgage which does not fully amortize over the term of the note, thus leaving a balance due at maturity. The final payment is called a balloon payment because of its large size. Balloon payment mortgages are more common in commercial real estate than in...

 loans. It is also possible to subcategorise on whether the loan is a secured loan

Secured loan

A secured loan is a loan in which the borrower pledges some asset as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the loan...

 or an unsecured loan, and whether the rate of interest

Interest

Interest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds....

 is fixed or floating.

Contents of 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:

1. Parties to contracts with their addresses
2. Definitions or interpretation provisions
3. Facility and purpose
4. Conditions precedent to utilisation
5. Repayment provisions
6. Prepayment and cancellation provisions
7. Interest and interest periods
8. Provisions dealing with gross-up in relation to any withholding imposed
9. Increased cost formulae
10. Payments provisions
11. Representations
    Misrepresentation
    Misrepresentation is a contract law concept. It means a false statement of fact made by one party to another party, which has the effect of inducing that party into the contract. For example, under certain circumstances, false statements or promises made by a seller of goods regarding the quality...
    
     of the borrower
12. Covenants of the borrower
13. Events of default
    Default (finance)
    In finance, default occurs when a debtor has not met his or her legal obligations according to the debt contract, e.g. has not made a scheduled payment, or has violated a loan covenant of the debt contract. A default is the failure to pay back a loan. Default may occur if the debtor is either...
    
    
14. Remedies in the event of default
15. Provisions for penalties and liquidated damages
16. For syndicated loans, provisions relating to the facility agent and security agent and voting of the lenders
17. Formulae for calculations
18. Provisions for fees of the lenders
19. Provisions for expenses
20. Securitization
    Securitization
    Securitization is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations and selling said consolidated debt as bonds, pass-through securities, or Collateralized mortgage obligation , to...
    
     provisions
21. Amendments and waivers provisions
22. Covenants relating to changes in parties
23. Set-off
    Set-off (law)
    In law, a set-off is a statutory defense to the whole or to a portion of a plaintiff's claim. It had no existence under the English common law, being created by 2 Geo. II c. 22 for the relief of insolvent debtors, although set-off was recognized in equity...
    
     clause
24. Severability clause
25. Counterparts clause
26. Addresses for notices
27. Language provisions
28. Choice of law clause
    Choice of law clause
    A choice of law clause or proper law clause is a term of a contract in which the parties specify that any dispute arising under the contract shall be determined in accordance with the law of a particular jurisdiction.-Explanation:...
    
    
29. Forum selection clause
    Forum selection clause
    A forum selection clause in a contract with a conflict of laws element allows the parties to agree that any litigation resulting from that contract will be initiated in a specific forum...
    
    
30. Appointment of a process agent
    Process agent
    A process agent is a representative upon whom court papers may be served. They typically represent carriers or freight forwarders, as a process agent can act to serve as a point of contact and a legal address for contract purposes in a country where the actual entity does not have an office.In the...