A loan contract is an agreement entered into between which regulates the terms of a loan. The loan agreement lists the terms under which a loan is given. The bank is the lender, and any borrowing entity–individual, partnership, company–is the borrower. Having a well designed loan contract template is a good start for your business.
Loan Contract and Debt Management
Loans are important for both business and individuals when overcoming short term difficulties. Business applys to banks for loan for their investment or projects. Individuals also need loans for their education, house or personal expense. For person who is figuring out what types of loans is the best choice, you may consider options that you may have overlooked
Loan Contract Types
The first option is to borrow against your cash value life insurance policy. If you were approached by a life insurance agent, he or she probably sold you a cash value policy because it pays high commissions to insurance agents. Or perhaps your parents bought one of these policies for you when you were a child. Borrow against the cash value to pay down your debts.
The second option is to sell investments held outside of retirement accounts. Maybe you have some shares of stock or a Treasury bond gathering dust in your safety deposit box. Consider cashing in these investments to pay down your consumer loans. Just be sure to consider the tax consequences of selling these investments. If possible, sell only those investments that won’t generate a big tax bill.
The third option is to borrow against the equity in your home. If you’re a homeowner, you may be able to tap into your home’s equity, which is the difference between the property’s market value and outstanding loan balance. You can generally borrow against real estate at a lower interest rate and get a tax deduction to boot. You must take care to ensure that you don’t overborrow on your home and risk losing it to foreclosure.
The last option is to borrow against your employer’s retirement account. Check with your employer’s benefits department to see whether you can borrow against your retirement account balance. The interest rate is usually reasonable. Be careful, though — if you leave your job you may have to repay the loan within only 60 days. Also recognize that you’ll miss out on investment returns on the money borrowed.
Loan Contract Template
During the course of designing a loan contract template, it is advised to include the following key element in your loan contract.
The first key area in loan contract template is loan contract term. The user may choose either a “demand loan” or a loan for a specific period. A “demand loan” is one where the borrower must repay the entire amount of the loan within 15 days after the Lender makes a written demand upon borrower for payment. A loan for a specific period is to be repaid within the pre-defined period.
The second key part is about default clause. Default means that the borrower has not complied with the terms of the loan agreement. The most common default is failure to make timely payments. However, the user may select other events that constitute default such as the borrower becoming insolvent.
The third key area in the template is loan repayment schedule. The agreement must specify the interest rate, calculation process and repayment process. If your loan has a grace period, that should be stipulated as well.
The fourth key area in the template is loan guarantee. Lenders usually require security to back your loan. The agreement must contain all the details of collateral. Collateral involves the pledge of a specific asset in a mortgage for real property or security agreement for personal property. Any co-signer or guarantors and their liability should be in the agreement as well.
The last key part in the template is loan covenants. This is especially important with a business loans. With a business loan, the bank may add a list of covenants or conditions that the borrower must comply with to keep the loan in good standing. If you do not comply with the covenants, the loan is in default and the bank can require payment in full.