… your cash flow is temporarily strained, and you need a loan
… your business needs to borrow funds to finance a new project
… you are willing to grant a loan to a company and wish to formalize the agreed conditions
Under a loan agreement, a lender agrees to provide a certain amount of money to a borrower as a loan against payment of interest.
The interest is used to compensate the lender for providing the money and to cover the borrower’s credit risk.
The loan may be granted for an indefinite period of time, in which case the lender may generally require repayment at any time upon notice. Alternatively, the parties may agree to a fixed repayment term or a minimum duration.
Very often, the borrower undertakes to provide the lender with collateral that serves to guarantee the repayment of the loan and enables the borrower to cover part of its losses in the event of the borrower’s default. The range of possible securities is very broad: for example, a guarantee or security from a third party, assignment of claims, transfer of ownership of machinery or pledging of shares. Which type of security will be used depends on the nature of the borrower’s business and the risk taken by the lender.
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