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How to create a Commercial Loan Agreement
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What is a Commercial Loan Agreement?
A Commercial Loan Agreement is a loan agreement on commercial terms.
To borrow money under a Commercial Loan Agreement, the borrower has to pay a stipulated amount of interest to the lender and repay the loan on specified dates.
A loan created under a Commercial Loan Agreement can be secured or unsecured, but in the case of a secured document, additional security documents are required.
Purpose of a Loan Agreement
The purpose of a loan agreement is to define the responsibilities of the parties involved. It also sets the terms of the agreement formally. These contracts should be compliant with local regulations to ensure that both the lender and borrower are protected. A signed loan agreement or contract is proof of the commitment between the lender and borrower.
Secured Commercial Loans
To get a secured business loan, the borrower must have ownership of some collateral to be used in the event that repayment is not done. For example, these collaterals could be, a building or a piece of land. Also, the value the collateral holds is held against the amount of the loan and the specifications of the loan agreement with the lender.
In the case where a borrower fails to repay the loan, the lender is entitled to take ownership of the collateral outright. Secured commercial loans are easier to get because of the collateral provided as it helps the lender mitigate risk. The interest rate on these loans will also be lower.
Unsecured Commercial Loans
Collateral is not required for this type of commercial loan. It is more difficult to get because there is no security for the lender and involves quite a bit of risk. Hence if the borrower defaults, there is little way for the lender to recover the amount given.
These loans require the borrower to have excellent financial stability and a proven record of paying off debts well. There are often a lot more requirements involved in obtaining an unsecured loan. Additionally, interest rates for an unsecured loan are quite high as the lender is taking on substantial risk.
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- Share Option Plan
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