A Secured Demand Loan Facility agreement is a type of agreement that states that the borrower needs to repay the whole amount at any point of time according to the demand of the lender. It is different from your regular loan where there is a maturity date. This type of loan is also known as a broker loan or call loan.
Through this, a business organization is able to get an immediate loan to meet its financial requirements. The agreement also includes the pledging of an asset which can be either stock or real estate.
When do you a need Secured Demand Loan Facility Agreement?
Any business, small or large, can use this to get an immediate loan for various financial requirements. There can be various purposes for secured demand loan facility agreement including:
- Partnership loans
- Short-term funding for new business
- Loans for investments
- For purchase of a car, equipment or any other asset.
- Bridge financing
Secured demand loan facility agreement legally binds both the borrower and the lender on specific terms to avoid any kind of future conflict.
Key terms of secured demand loan facility agreement include:
- Contact information of borrower and the lender.
- The principal amount being borrowed
- Interest rate
- Consequences of defaulting
- Late fee
- Type of asset
Inclusions in secured demand loan facility agreement
The agreement is signed between the two parties so that no further misunderstanding occurs. The two parties involved include:
- The borrower: a company or an individual who borrows money to meet his financial requirements
- The lender: a bank or a private money lender who gives the loan
Effective date or date of demand is the last payable date by which the borrower needs to return the amount to avoid default and is also included in the agreement. The agreement also includes the details about how the money needs to be paid back and also the consequences if the borrower is unable to clear the debt.
How to draft a secured demand loan facility agreement
Drafting a secured demand loan facility agreement includes the following steps:
- Choosing the type of loan: The borrower needs to first choose the type of loan he wishes to apply according to his/her requirement.
- Obtaining and providing the credit report: After choosing the type of loan, the borrower needs to do a credit check. The range of the credit score is from 330 to 830. The higher is the credit score, the lesser is the risk to the lender.
- Need for Collateral: The requirement of collateral depends on the credit score. The scores below 700 need to put up collateral which can be in the form of a home, shares or any other asset.
- Signing the agreement: A legal contract including all the required information and terms is signed by both the lender and the borrower.
- Receiving money: After the authorization of the agreement, the borrower receives the money and is held responsible for any delay in the process of returning the amount.
Benefits of secured demand loan facility agreement
Verbal promises sooner or later result in conflicts. A written agreement is the best solution in order to avoid such conflicts and listing of all the payment terms and interest rates. The various benefits of the secured demand loan facility agreement are:
- Clear spelling out of the installment type in which the payment is to be made. This ensures both parties are well aware of the exact amount of interest to be paid.
- The written agreements also mention the credit score and added collateral in case of a low credit score.
- The agreement also has a clear listing of the consequences in case of default in the payback.
- The agreement is also helpful in future disputes serving as proof to the third party or judge who can easily enforce the terms of the contract.
The consequences of not having an agreement may include expensive lawyer fees by parties, battling the ownership of the collateral and pursuing and fighting debt collection.
Types of secured demand loan agreements
- Simple loan agreement: A simple loan agreement includes a promise of repayment, steps of installments, effective dates, the signature of borrower and lender and also the consequences of default in payback.
- Promissory note: A promissory note is more flexible than loan agreement and only includes steps of installments, the signature of borrower and lender and effective dates. No consequences in case of default are mentioned.
- IOU: This document shows a legal binding between the lender and the borrower and has the least amount of information.
Key terms/clauses in secured demand loan facility agreement
Apart from the basic information like the contact details of parties involved, effective dates, interest, and collaterals put up, the secured demand loan agreements also include some other details. These demand loan features are as follows:
- Events of acceleration: The lender might want to move up the date of payment and demand for immediate payment of the loan in some cases including bankruptcy, failure in payment of installment, death of the borrower, selling of any of the collateral assets or in case borrower wants to go for early repayment..
- Laws of government: In case of disputes, which state laws are applicable is also mentioned in the agreement.
- Late charges
- Transfer right: This means the lender is able to transfer the loan to another party.
Here is the sample of the secured demand loan facility agreement. You can download the sample and customize according to your needs.
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