Financing -- Loans/Loan Agreement
Attached is a loan agreement between a borrower and myself.
According to my tax consultant, this agreement complies with tax issues for both borrower and lender. She advised I get the agreement reviewed for legal purposes, so that's why I'm here.
I didn't put in clauses for non-payment or late payment, etc., and I know this is an unwise decision business-wise. However, this particular borrower has excellent credit history and has always paid me back. Neither of us disagree with putting in such clause but I'm not sure how to word it.
Could you please look over the agreement and let me know how to proceed? Thank you.
This LOAN AGREEMENT is entered into between _____ (the “Lender”) and ____ (the “Borrower”).
Amount of loan. The Lender hereby agrees to lend the sum of TWENTY-FIVE THOUSAND DOLLARS ($25,000.00) to the Borrower on the terms set out hereunder.
Period of loan. This loan shall endure for a period of SIXTY (60) months calculated from January 1, 2015.
Interest. The Borrower shall be obliged to pay interest at the rate of 2% (percentage) per annum, the interest and capital to be paid in equal monthly installments of FOUR HUNDRED THIRTY-EIGHT DOLLARS AND NINETEEN CENTS ($438.19).
Place and time of repayment. Repayment is to be made by way of monthly installments by the Borrower on or before the fifteenth (15th) day of every month by means of deposit (electronic or otherwise) into the Lender’s account.
Prepayment by Borrower. The Borrower shall be entitled to pay larger installments than prescribed or the full balance of capital and interest at any time prior to the prescribed dates of payment.
Breach of terms. If the Borrower fails to make payment of any installment on due date and the Lender decides to enforce the acceleration clause, he shall first give written notice to the Borrower calling upon him or her to make payment within (number) days, failing which the Lender shall be entitled to claim payment of whatever is due in terms of this agreement by way of summons.
Insolvency. The full balance of the capital and interest shall become payable immediately upon sequestration of the Borrower’s estate.
The whole contract. The parties confirm that this contract contains the full terms of their agreement and that no addition to or variation of the contract shall be of any force and effect unless done in writing and signed by both parties.
Sorry, you have asked for legal advice and I am not an attorney, nor allowed to give such.
An opinion, is you seek an attorney's advice.
Also, you can get notes off the internet.
Lastly, it doesn't matter is he is your brother.
Raise the interest rate to something reasonable, say 6% to 10%, you need default provisions (e.g. what happens if he doesnt pay you) and a default interest rate, so that he just doesn't pay you back and lets the note accumulate at some low interest rate.
If you do not seriously consider adding the above provisions, then do yourself a favor and don't loan the money, just gift it.