Under a loan agreeement, the creditor agrees to provide a sum of money to a debtor, who promises to return the money to the creditor either in one lump sum or in parts over a fixed period of time.
Prior to entering into a loan agreement, the future debtor first makes representations about his/her creditworthiness (the opinion of a creditor regarding the ability of a person or business to settle its obligations when due), cashflow, and any collateral that s/he may have available to pledge as security for a loan.
Forms of loan agreements vary tremendously from industry to industry, country to country, but characteristically a commercial loan agreement will incorporate the following terms: repayment provisions; cancellation provisions; the principal amount (the original amount of money borrowed without interest); interest rate and interest periods; events of default; collection (the debt recovery process of unpaid and pending loans from the debtor) and remedies in the event of default; stipulated damages; formulae for calculations; fees of the creditors; expenses; and set-off (the right of a debtor to balance mutual debts with a creditor).
KEY VOCABULARY
cancellation
collateral
collection
creditor
creditworthiness
debtor
interest
interest rate
lump sum
to make representations
to offset claims
to pledge
principal amount
repayment
set-off
to settle obligations
stipulated
