How To Write A Loan Agreement

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A loan agreement may be a legally binding agreement that describes the terms on which a loan are going to be extended and repaid. you’ll got to draft a loan agreement if you’re loaning money to (or borrowing from) family, friends, or alittle business. annually almost $90 billion is loaned between family and friends. A loan agreement helps each party know what the terms of repayment are and what is going to happen if a payment is late.

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Purpose of a Loan Agreement

The main purpose of a loan contract is to define what the parties involved are agreeing to, what responsibilities each party has and for a way long the agreement will last. A loan agreement should be in compliance with state and federal regulations, which can protect both lender and borrower should either side fail to honor the agreement. Terms of the loan contract and which state or federal laws govern the performance obligations required by both parties, will differ depending upon the loan type.

Other Reasons for Using Loan Agreements

Borrowing money may be a huge financial commitment, which is why a proper process is in situ to supply positive results on each side .

Most of the terms and conditions are standard fare – amount of cash borrowed, interest charged, repayment plan, collateral, late fees, penalties for default – but there are other reasons that loan agreements are useful.

Finalizing the Loan Agreement

Add a severability clause. Generally, if one a part of the contract were to be found illegal, then the whole contract might be voided. to stop this, include a severability clause.

  • Sample language could be: “If a term or provision of this Agreement is said by a court of competent jurisdiction to be illegal or in conflict with any law, then the validity of the remaining terms and provisions shall not be affected.”

Insert a notary block

Generally, you are doing not need loan agreements to be notarized. However, it can provide protection just in case a legal dispute arises and there are questions on whether or not one among the parties signed the agreement.

  • Find an appropriate notary block for your state. Search “your state” then “notary block” or “acknowledgement” using your favorite browser . Sample blocks are often posted online.


  • Although you’ll make an agreement , these are harder to enforce because you’ll not have conclusive proof of the terms of the contract. Always make certain to place your loan agreement in writing.
  • If you’re charging interest on a loan, you’ll want to talk to an accountant. you’ll need to claim interest on your tax forms.
How To Write A Loan Agreement

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