4 important sections in a loan contract

A loan contract can be a long and often complex document. In a separate article (8 Key Terms to Consider When Reviewing a Loan Agreement), we give a short run down on the important terms to check out, but in this article we explain how the document itself is structured.

1.       Definitions and Interpretation

The definitions and interpretation section defines all of the terms that are to be used throughout the loan contract. Any capitalised term used in the document will be defined in the definitions and interpretation section. It’s important that, when reviewing a loan contract, you consistently check back on the definitions section – the devil is in the detail.

2.      Financial Section

This section sets out the operational terms of the loan contract. Issues addressed include the amount of the loan, the amount of interest to be paid, and the repayment schedule  for both interest and capital. The two parties will usually focus heavily on this section, whilst leaving the other sections to be reviewed by their lawyers (if they are using external counsel).

3.      Transaction Section

This section relates the specific details of the transaction itself. The major terms and conditions of the loan contract are set out in this clause, including the responsibilities of the parties.

4.      Boilerplate Section

The boilerplate section sets out all the standard clauses that the parties would expect to see in a loan contract, relating to issues such as governing law, addresses for service and the like. The boilerplate section is usually the longest section in a loan contract, but usually takes the least amount of time to review, as it’s relatively standard.

Conclusion

Loan contracts usually stick to a set structure, but there is no legal requirement for this structure to be observed; it’s simply a convention. If you’re drafting or reviewing a loan contract (otherwise known as a loan agreement) it’s important that you understand the relevant structure and conventions. Contact LegalVision on 1300 544 755 and find a contract attorney who can help you through the steps and give you the best advice.