Loan Agreement North Dakota: Everything You Need to Know About Loan Agreements
If you are thinking about loaning money to a friend or a business or if you on the other side of this and are planning to borrow money, either for business or personal reasons, a loan agreement is one of the important documentations that you need. Also called the loan contract or the business loan agreement, this agreement lays out the terms of the contract in a bid to ensure that the parties to the agreement are fully aware of their rights, as well as their obligations to each other. The agreement also makes the whole financial arrangement more formal, and the best part is that the agreement prevents any unnecessary misunderstandings and potential disputes that might arise later on. On top of that, the loan agreement further breaks down the relationship between the lender and the borrower. And finally, the agreement ensures that the lender has some legal recourse with no details let out of pocket, which is why you need to prepare this agreement and only sign it if you are sure that the terms of the agreement are fair and reasonable.
Besides the loan agreements, the other document that might come in handy is the promissory note. Though they serve the same purpose, the promissory note is a more simplified version of the loan agreement, and it doesn’t have a detailed payment schedule. Also, the promissory note is only enforceable and with the borrower’s signature because the borrower uses this note to pledge that they will repay the loaned amount by a specific date specified in the loan agreement. Bear in mind that the promissory note can be a secured or unsecured promissory note.
To get started with the loan agreement in North Dakota, the first thing you’d have to do is to download our free North Dakota loan agreement form. Essentially, this form gives you a comprehensive outline of the things that would normally go into an enforceable loan agreement document, which means that if you are the borrower, this form will serve as a sample loan agreement that you can refer to from time to time to determine whether the terms of the agreement are reasonable or not. And if you are the lender, then this sample business loan agreement form will be the benchmark with which you get to draw the specific terms of the loan to ensure that your finances and your business are protected in case of loan defaults. Banks and other credit lending institutions will have their own drafts created, but as an independent lender, you need this kind of documentation to not just appear official, but to protect your interests.
That said, you need to be aware of the functions and the benefits of the sections that make up the loan contract. The clauses incorporated into the loan contract are particularly important as they are designed in a way that will make the loan amount, terms, and the total repayment amount fair or not. So, as the borrower, you need not rush the loan application process, and you need to sign for the loan, only if you are certain of the terms. Beyond the identification of the parties, the relationships between the parties, and the effective date for the loan, these are the other important sections that you need to keep in mind/ review.
Essential Clauses in Loan Agreements
The loan amount – this refers to the full value of the loan, along with the interest rate charged. Think of this value as the total value of the loan, the principal amount, plus the rate of interest. Though obvious, you need to watch out for the interest rate charged. While your credit score will come into play and it might be the reason for your low or high-interest rate charged by the lender, you need to be aware of the state laws regarding interest rates on loans/ usury laws. According to the state of North Dakota, the maximum allowed interest rate is 6% for consumer loans below $35,000. However, the 6% interest rate doesn’t apply to loans above $35,000 or loans issued to corporations, partnerships, LPs, bona fide pawnbrokers, as well as the agencies that are funded by either the federal government or the state. The lenders are also required to adhere to the fact that the maximum interest rate that parties to an agreement get to agree upon in a written contract is 5.5% above the average interest rate slated on Treasury Bills. But even then, the maximum allowable rate is at least 7%. If a lender breaks the law, they will be required to forfeit the interest along with 25% of the principal amount. Penalty for usury is also classified as a Class B misdemeanor, and if all the interest has been paid, the borrower might recover up to two times the amount.
In legal judgments, the rate applied is 12%, in the absence of a contract rate.
The repayment date – this is the other important element of the contract, as it specifies how the loan will be repaid if you will be willing and capable of making the payment as per the specified terms. This section of the agreement is highly negotiable, and you should sign off on the terms of your agreement once you’ve reviewed the repayment schedule and determined that you would be able to make the payment on time. Use your revenue projection and bargaining power to get the best rates.
The other important sections of the loan agreement cover collateral, default terms, and whether there are additional restrictions or obligations on the borrower.
To get started with the loan contract in Fargo, Minot, Bismarck, Grand Forks, Mandan, Williston, Dickinson, or any other city in North Dakota, download our free loan agreement form here.