Loan Agreement in Delaware: Importance of Loan Agreements and Promissory Notes
Whether you are thinking about borrowing money or loaning money for personal or business reasons, you need to understand everything you need to know about creating and working with a loan agreement that offers you the best deal. The agreement comes in handy even when you both know each other well. But first, it’s worth noting that the agreement represents a legally binding agreement between the lender and the borrower, and it specifies the terms of the loan, as well as the obligations and the responsibilities of the parties to the agreement.
What about the promissory notes? When is it ideal to use a promissory note rather than a loan agreement? Well, promissory notes come in handy when the idea of a comprehensive loan contract is too formal in your arrangement. Unlike the loan contracts/ agreements, the promissory note has fewer sections, appears less formal, and its formalization and enforcement only calls for a single signature. A promissory note is preferable for use between private individuals, and it also sums up the value of the money loaned, especially when the money being loaned is relatively small. The promissory note is more flexible; it often is the element of security.
To get started with the loan agreement in Delaware, first, you need to download a free Delaware loan agreement form online or a secured/ unsecured promissory note form. The free loan agreement template has all the important sections that ensure adequate protection of the rights of the parties to the agreement. That said, here are the reasons why you might want to use the agreement.
It specifies the interest rates on the loan
Like all the other states, the state of Delaware has put in place a specific set of rules to ensure consumer protection from exploitation. Lenders are required to follow specific sets of rules and usury laws to ensure fair rates. The state has set a limit on interest rates at 5% above the Federal Reserve Discount Rate, and the same maximum interest rate for loans agreed upon in writing. In case the rate of interest charged by a lender is above the maximum legal rate, the debtor doesn’t have to pay the interest above the set rates, but if they do, they might recover their interest up to three times over the excess interest rate charged.
The interest rate applied to the legal judgments is also 5% above the Federal Reserve Discount Rate.
However, there are no limits on interest charged for loans over $100,000 and if the loan is unsecured, either by mortgage loans on the personal residence of the borrower.
It’s worth noting that thanks to the usury laws, lenders would not be tempted to spike the interest rates just because borrowers are unable to repay the loan on time.
The agreement helps you avoid payment defaults
Loan defaults are the biggest risk when it comes to loans, but this doesn’t mean that you should live with the risk of defaulting your payments all the time. What this means is that you need to read your loan agreement’s fine print and negotiate the terms to ensure that you reduce the risk of defaulting your payment. So, if you are taking business, your negotiation deal would include going through the terms to make sure that you can satisfy all the requirements. What this means is that you could agree with the Credit Company/ bank to maintain specific balance sheet ratios, get consent from the bank before creating subsidiaries or selling assets, or delivering periodic financial reports to lenders.
You could also protect yourself by negotiating for cure periods for all breaches, insisting that penalties/ ramifications must end immediately after the default period has to been waived or cured.
Finally, you need to remember that defaulting your payments would increase your business’ administrative burden with regards to managing, comprehending, and also remedying different situations.
You get to negotiate fair repayment terms
Most borrowers don’t know this, but you actually get to negotiate the loan’s repayment terms based on your revenue projections, financial capacity, and even your relative bargaining power.
Point of Reference
At the end of the day, however, the biggest benefit of the loan agreement is that it works as a reference document and in the event of a dispute or change in the terms, you get to go back to the initial agreement to determine whether the change is within the preset terms or not.
Whether you live in Newark, Wilmington, Dover, Rehoboth Beach, Milford, Middletown, New Castle, Lewes or any other cities in Delaware, our free loan agreements forms will ensure that you get the best terms of the loan and that you really get the best deal on the market.