As part of the borrowing process, all commercial lenders ask borrowers to sign an official agreement before a loan application is approved. If you plan on entering into a peer-to-peer loan arrangement, it is imperative to create a quality agreement document that offers protection to all parties.
Loan agreements can include a range of different pieces of information, some of which are arguably more important than others. Here are just a few of the most important provisions to include in every financial agreement you make as part of the peer-to-peer lending process.
1. Provisions for Default
Loan agreements must contain default provisions, including setting out precisely what counts as a payment default as this will vary depending on the type of repayment plan that has been agreed upon.
This section of the document should also explain what will happen in the event of a default. It is vital that both parties understand that a lender is within their legal rights to file a breach of contract lawsuit should a default occur. In addition to securing a legal judgement which covers both the initial loan amount and any interest that has been accrued, lenders can also seek the recovery of legal, collection, and court fees.
There is a variety of loan agreement information from Parachute Law available, so do ensure that you obtain trustworthy legal advice before signing on the dotted line of any agreement.
2. Party Signatures
Loan agreements must provide space for all relevant parties to sign and date the document. Legal experts also stress the importance of having the signature process witnessed by at least two external parties.
3. Severability
A severability clause is designed to ensure that an agreement will continue in the event that an aspect of it has been officially declared to be unenforceable. The following statement will act as a suitable severability clause in most loan agreements:
‘If any part of the agreement is unenforceable, illegal or invalid, the rest of the agreement is not impacted.’
4. Relevant Laws
Acknowledging the specific laws that are involved in an official agreement strengthens the validity of the documentation and ensures that all parties are properly protected by the law.
5. Entire Agreement
As one of the most important provisions within loan agreements, this prevents parties from claiming that there are additional agreements in place over this loan. Again, this can be covered by just a few sentences, which state that no promises have been made between parties outside of this document. It is also sensible to emphasise that the agreement cannot be terminated or modified in any way, without being submitted in writing and signed by all relevant parties.
There are countless financial agreement templates available online from numerous sources and they may be referred to as private loan agreements, personal loan agreements, or family loan agreements. Seeking professional legal advice is always recommended to ensure that all essential information is present.
