Loan Agreement in Connecticut – What’s Included?
A business loan agreement, loan agreement, a promissory note, a loan contract, or even a facility agreement is a legally binding agreement drawn up between a lender and a business (or an individual for personal loans). While this agreement is common in small and large business settings, the truth is that these agreements can be quite complex, and before you take out a loan or provide one, you need to make sure that you understand all the important aspects of the agreement. In this article, we’ll help you create the perfect legal agreement or, in the very least, know what should be in the agreement document before you hit I Agree or sign below the dotted lines. But first, you might want to download the free Connecticut loan agreement form to get started. Also, you need a state-specific loan agreement in Connecticut to make sure that you are on the right side of the law and to be protected from the exploitation.
That said, here are some of the important segments you should have in the loan contract.
Parties to the agreement and their relationship
The agreement recognizes two main parties, the lender and the borrower. The parties to the agreement are introduced or identified at the beginning of the agreement, and the relationship to the contract is also defined.
The Effective Date
This is the date that the business loan agreement is signed. Your downloaded loan agreement sample will have a section for the effective date, as well as the parties’ names and addresses, as well as their responsibilities.
This section of the loan contract specifies the amount of money that the lender extends to the borrower. It’s inclusive of the details of the co-signer (If there’s one), as well as the interest rate charged on the loan.
When it comes to a loan agreement, the interest rate is one of the most important parts of the contract, and the first and the most important consideration that you should have in mind is that the interest rates applied must be state-specific.
Depending on the lender, the interest rate could be fixed or compounded. In the state of Connecticut, the interest rates applied shouldn’t exceed 12% and 8% for the legal court judgments. These statutory laws are, however, not applicable to some mortgages, student loans, pawnbrokers, as well as the loans on automobiles and loans.
In cases where lenders charge interest rates higher than the state prescribed rates, the higher rates would make the loan unenforceable.
Note that depending on the loan repayment schedule you come up with, the interest would be payable at the end of every interest period, at each payment period, or at the end of the loan’s term.
Collateral refers to the security that asked by a lender for the loaned amount. Most lenders will ask for collateral to protect themselves in the event of a defaulted loan. Some of the options for security include cash or assets – essentially, anything that the lender can easily manage, ease, or even liquidate, in the event of a foreclosure. Stocks are also used as security. Considering the weight that is carried by security, some lenders often ask borrowers to sign separate security agreements, especially when it comes to things like tangible or intangible property that would grant liens on assets. Before you sign the agreement, go through everything in the fine print and be sure that the terms on the security agreement are favorable. In cases where credit requirements compel a borrower to get their landlord to sign a waiver consenting the lender to access the borrower’s place of business to remove all the security property in case of a defaulted loan. So, with all these in mind, you need to make sure that the terms of the agreement are fair to your business and personal financial situation.
What happens when you default on your loan payment? Is it possible for you to avoid being a defaulter? Every loan contract comes with a section that addresses what the lender will do in case you default payments. However, that doesn’t mean not being prepared for what would happen or even avoiding a default altogether.
For starters, you need to make sure that the terms of the loan’s repayment are actually reasonable and that you can pay back the loan in fair terms. If you are taking a business loan, avoiding defaults would mean maintaining specific balance sheet ratios or even getting consent from the bank before taking important actions like selling assets. The other things you need to consider include maximum or minimum dollar limits, materiality quantifiers and adding knowledge, cure periods, and you the terms might also insist that ramifications and penalties cease immediately once the default is waived/ cured. These actions are seemingly unimportant, but they are extremely important considerations for the contract.
The final piece to the puzzle is the signature. The lender and the borrower must sign the agreement to make it legally enforceable.
If you are planning to create a loan contract in Bridgeport, Stamford, New Haven, Hartford, Danbury, Waterbury, Norwalk, or any other city in Connecticut, get our free loan agreement form here to get started.