What Is a Loan Agreement?

A Loan agreement is a legal document that outlines the terms of a borrower or lender’s relationship. It includes details on covenants, value of collateral involved and guarantees. It also outlines how payments are made.


Some loan agreements include prepayment information. It details when a lender will allow a prepayment and under what circumstances.

Borrower Information

The borrower information section includes all the personal details of those who are obligated on the loan, including names, addresses, Social Security numbers and phone numbers. It also explains the amount of money you’re borrowing, along with any other associated costs, like fees and interest.

Depending on the type of loan, this could include collateral requirements (if any), terms of payment and a prepayment penalty. It may also describe how to pay off the loan, including if you want to roll the debt over or pay it off early.

If you have a co-signer, their name will be listed here, too, along with any additional names or legal entities that may be obligated on the agreement. This section may also include a cross-default provision, which stipulates that failure to live up to your commitments to one lender will be considered a default to all other lenders.

The last section of the agreement will list the lender’s expectations of the borrower, which are broken down into positive covenants, negative covenants and reporting requirements. It’s important to read through these sections carefully and take note of any language that might be deemed unenforceable by law.

Lender Information

A loan agreement contains details about the lender. This includes the lender’s name and contact information, the specifics of the transaction (amount, term, interest rate, etc.), collateral requirements if applicable, payback requirements and penalties for late or nonpayment. In addition, the lender may also agree to abide by certain financial reporting requirements.

Other important details included in a loan agreement include a description of how interest is calculated, including federal and state guidelines that prevent excessive or illegal interest rates. The lender may also agree to provide payment on demand or at the end of the term of the loan.

A loan agreement can also contain a section that specifies whether there is a cosigner or guarantor for the borrower. If there is, this person’s information needs to be listed as well. The document should also describe what happens if a guarantor or cosigner fails to honor the terms of the contract. Lastly, the document should clearly lay out any fees that the borrower may be required to pay, including application fees, monthly maintenance fees and prepayment or early payment penalties.


When lenders loan money to borrowers, they often require some type of collateral to protect themselves in the event of default. This protects them by allowing them to take ownership of the property and use it as an instrument to recover part or all of the money that was loaned. The collateral contained in a loan agreement is often an asset that the lender owns and/or controls, such as real estate or equipment.

Lenders can speed up the loan process by using tools that convert paper documents to digital templates and allow for e-signatures. These tools can also help to ensure that the terms and conditions of a loan agreement are complete and correct.

It is important to verify that any asset pledged as collateral is valuable and easily transferable – especially in the case of marketable assets, such as stock or cash. In addition, it is helpful to make sure that the collateral is enforceable by laws in the jurisdiction where the contract is executed. Finally, the loan agreement should include a survivability clause that stipulates that certain representations and warranties remain in effect even after termination or expiration of the contract.


A loan agreement provides clarity between the borrower and lender regarding expectations. It also helps protect both parties from misunderstandings that could lead to costly consequences, such as a higher-than-expected interest rate.

A prepayment section of a loan agreement outlines the terms and conditions of paying off the loan early. This includes a breakdown of how this would affect the loan balance and any associated fees. It may also include a provision allowing the lender to “accelerate” the loan. This would mean increasing the due date of all payments, including interest, to reflect current market rates.

Other provisions in a loan agreement may include details about guarantors who will promise to pay the debt if the borrower is unable, or successors who will be responsible for the repayment of the debt if the borrower dies. Regardless of the type of loan, all loan agreements should comply with federal and state regulations that protect both parties. A sample of a standard loan agreement is available online. It is common for loan agreements to include places for signatures by the borrower and lender, as well as for witnesses or a standard notary public attestation.


A default clause in a loan agreement is the part that lists what will happen when you are in breach of your debt contract with the lender. The bank can take a variety of actions on the event of a default including cancelling undrawn portions of the facility, demanding the return of all loan monies and enforcement of security rights. Borrowers will typically seek to limit the scope of events that trigger this section.

For example, they will want to ensure that this event is triggered only when a representation made by the borrower in the loan documents or otherwise has been shown to be inaccurate. They may also try to limit the types of actions that are prohibited in the event of a default. Often these include selling company assets outside the normal course of business and making certain kinds of investments.

In addition, they will typically attempt to minimize cross-default provisions that could trigger a default under other agreements the borrower has with third parties. These might include critical reciprocal easement agreements, condominium documents and other material property documents.