What is Commercial Loan Agreement Drafting?
A commercial loan agreement is a legal contract between a lender and a borrower (a business owner). It outlines all terms for the parties to follow so that the money being borrowed is repaid.
To prevent disputes over any terms in the arrangement, a commercial loan agreement must contain essential information. Since these agreements can be highly customized, you need to ensure they’re drafted clearly and comprehensively.
Read the rest of this article for clarity about key terms to include in a commercial loan agreement, how to draft it, and how a lawyer can assist you with the process.
What are Terms in a Commercial Loan Agreement?
Ensure your commercial loan agreement contains the following key terms:
- Loan details. Explain the principal amount being borrowed and interest rate that applies, such as if it’s fixed or variable.
- Repayment schedule. Outline how frequently payments will be made and what happens if payment is early or late.
- Collateral. If the business pledges assets to secure the loan, these should be clearly defined.
- Default and remedies. If the contract terms are breached, such as the business misses making payments, explain the remedies. You should also clearly state what constitutes a default.
- Representations and warranties. Include statements that the business is financially compliant and has the legal authority to enter the agreement.
How Do You Draft a Commercial Loan Agreement?
Once you’ve set some clear terms in your agreement, you should consider additional information to make the agreement comprehensive.
Explain the Loan Amount
Be exact about the principal sum owing and how funds will be paid. Specify if they will take the form of a lump sum or installments.
Detail the Interest Rate
Explain how the interest rate is calculated and compounding frequency. You want clarity about how unpaid interest is added to the outstanding amount and how this affects the total amount that has to be paid by the borrower.
Provide clarity about when the interest begins accruing, such as on the date when the loan’s funds are advanced.
Include an Asset Purchase Agreement
If assets are put up as collateral or security for the loan, giving the lender a chance to claim those assets if the borrower defaults on payments, you want to include security provisions or attach a separate security agreement. This helps you to provide clarity on the specific assets serving as collateral.
Verify all Costs and Penalties
Penalties can apply in a commercial loan agreement, such as if the borrower pays late or misses a payment deadline, or if they pay off the loan early. To prevent surprises in the future, your agreement must clearly detail what additional penalties apply in various scenarios.
Check Compliance
When drafting your agreement, make sure that all its terms are compliant with financial regulations and other applicable laws. Since this can be challenging to do if you don’t have a legal background, a qualified lawyer can assist you with the process to prevent non-compliance.
How Does a Lawyer Help with Commercial Loan Agreement Drafting?
A commercial loan agreement can be highly detailed, so it’s advisable to hire a lawyer to draft your contract for you. A lawyer can help you during the drafting process by:
- Explaining and defining all the terms of the loan. This includes stating the principal amount and other payment terms that apply.
- Setting the interest rate. They’ll explain if the interest rate is variable or fixed, and how it can be calculated. They’ll clarify this to prevent ambiguity.
- Setting responsibilities. They’ll outline all installment amounts required for repaying the debt and ensure the agreement contains a final maturity date.
- Evaluating all charges. Extra fees that apply to the agreement, such as late-payment penalties, will be included so that you can avoid surprise charges in future.
- Including security provisions. A lawyer will draft clear provisions for collateral, should these be applicable to your agreement.
- Outlining remedies. They’ll explain defaults and how remedies can be applied to them, such as in the case of a contract breach.
- Establishing regulatory compliance. They’ll align all agreement terms with the relevant laws and regulations.
- Reviewing your commercial loan agreement. They’ll provide a thorough review of your agreement if you’ve already drafted it, giving you peace of mind before you agree to its terms.
Find a Lawyer for Commercial Loan Agreement Drafting
Deciding to find a lawyer to draft your commercial loan agreement shouldn’t be stressful or time-consuming. If you use an online legal marketplace, you’ll gain access to a range of experienced and reputable lawyers who can assist you.
ContractsCounsel is one of the largest online legal platforms that connects clients to a curated network of lawyers who have been vetted on the platform. All lawyers have expertise and experience to assist you with your contract-drafting requirements.
Ready to hire a lawyer? Here are the steps to follow from your device:
- Go to the ContractsCounsel marketplace.
- Select the ‘One-time project’ and ‘Create or update contract’ options. Alternatively, select ‘Contract review.’
- Post your project for free. Include details of your agreement so you can match with suitable lawyers.
- Wait for bids. Once you post your project, you’ll receive multiple bids from lawyers directly on the platform.
- Review the lawyer data. The platform provides information about lawyers, such as their credentials, years of experience, field of expertise, location, and client ratings for previous projects completed on the platform.
- Once you’ve completed your research, select a lawyer to hire. They’ll draft your commercial loan agreement for a flat fee.
