It is usually the lender’s solicitor who will draft the loan agreement. While it is possible to use a loan agreement template, this is not usually advisable as there is wide scope for errors to be made when using standard documentation and important clauses could be missed out.

The lender can set out the terms on which the money is to be lent as well as the details surrounding repayment and enforcement, should this be necessary. Our loan agreement solicitors routinely act for a wide range of lenders, taking instructions to draft a strong contract that is both clear and fair.

We also represent borrowers, advising on the terms of loan agreements and where needed we can negotiate to try to improve the terms offered.

Provided a loan agreement has been correctly drawn up and executed, it will be legally binding and can be enforced in the courts if necessary.

A loan agreement is a contract and to be valid it needs to be fair and reasonable. It should clearly set out the terms of the loan and the obligations of each party.

While a loan agreement should be tailored to suit the individual circumstances in each case, it will generally contain the following key clauses:

• Details of the borrower and the lender
• The amount of the loan
• The purpose of the loan
• The period of the loan
• Repayment terms, including how much will be paid and when the payments will be due
• The rate of interest and how this will be calculated if it will vary
• Penalties for late payment and default
• Indemnities given by the borrower indemnifying the lender against losses arising in specified situations such as defaulting on payments
• Representations and warranties, or statements and guarantees made by each party about certain facts
• Default events that could give the lender the right to request early repayment of the loan
• Details of any assets offered by way of security for the loan
• Details of any guarantor

If a loan agreement is defaulted upon, you are entitled to take steps to recover the loan, in accordance with the terms of the agreement. It is important to follow the loan agreement in dealing with enforcement or you could be deemed to have breached the contract.

It is generally advisable to speak to the borrower to try and find out why the default has happened and find out whether it is a temporary issue. You may want to consider agreeing to a new repayment schedule. If you do, you are strongly advised to have this put into a written agreement.

Where legal action is necessary, a solicitor will be able to write an initial letter on your behalf setting out the details of what is owed and how the loan agreement has been breached. If this is not successful, you can consider going through the pre-action protocol and bringing a court claim. The correct procedure must be followed to ensure that you do not inadvertently damage your case and you are advised to seek legal advice before proceeding.

The pre-action protocol is designed to try and help parties resolve matters in advance of a court case and involves the disclosure of documents and setting out of each party’s position. Failure to follow the correct process when starting a claim can result in penalisation by the court.