It is important to document loan arrangements in a legal agreement, ensuring they contain certain components to offer the required level of protection and certainty. Let’s take a look at what a loan agreement should include to ensure it is enforceable if needed.
Details of parties and loan
A professional loan agreement created by companies such as https://www.parachutelaw.co.uk/loan-agreement must include clear details about both the lender and the borrower. It should also include the repayment terms and the amount of the loan.
Interest and payment
Any interest payable should be detailed, including how much this will be and the method of payment. The way the loan should be repaid should also be detailed, including when payments should be made, and it is advisable to include bank details in the agreement. It can also add clarity by clearly stating the currency involved, which is especially important if the parties involved in the loan are in different countries.
Guarantor and security
Any guarantor should be a co-signatory on the loan agreement, although this will not apply if you also have a guarantee agreement. In many cases, however, it is easier to have a single loan agreement with a guarantee clause. You can find out more about the role guarantors play on the Advice Now website.
A loan agreement should also document any security. If property is used, you will also need a mortgage deed to register a charge on the property title with HM Land Registry. If a company is borrowing money and there is a debenture or charge to support the loan involving company assets or property, the charge also needs to be registered with Companies House. This needs to be done within 21 days to ensure the charge is legally enforceable.