A loan agreement is the formal document drawn up between a borrower and lender detailing the terms of their loan. The lender is often a financial institution and the agreement can be lengthy and detailed. It is likely to include the reason for the loan, requirements for repayment, interest rates, the term of the loan and penalties for default.
It is not essential for a loan agreement to be witnessed or notarised, however when borrowing from a financial institution their rules will apply and they may often require the signature of an independent witness.
In theory a loan agreement can be verbal. In practice a verbal loan agreement can be very hard to prove and to enforce. For the avoidance of doubt and misunderstanding, a clearly worded agreement is always preferable.
A bilateral loan agreement is between one lender and one borrower, as opposed to a syndicated loan agreement where there are multiple lenders. A bilateral loan agreement is far simpler and is the option more often chosen by individuals and smaller businesses.
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