What is a Term Loan?

A Term Loan is a contract between a borrower, who is looking for money and a lender, who is willing to provide the capital to the borrower. 


Term Loan Template

How to create a Term Loan

1
Create a Zegal Account
2
Make an agreement using Zegal templates
3
Get help from a lawyer anytime
Block Image

Easy to Use Legal Templates

Quickly and easily create any legal agreement for you or your team.

Affordable Plans

Straightforward pricing plans and bespoke packages built to simplify all your legal demands.

Block Image
Block Image

Vast Document Library

Zegal’s comprehensive collection of agreements means you always have what you need at your fingertips.

A Term Loan is a contract between a borrower, who is looking for money and a lender, who is willing to provide the capital to the borrower. 

A commercial term loan is one by which a company acts as a borrower.  A personal loan depends on the income and assets of the individual requesting a loan.  In all cases, lenders will want assurance for repayment.  A term loan is essential for this.

A loan can be secured or unsecured, but in the case of a secured document, additional security documents are required.

What is in a Term Loan?

All term loan will contain details about the borrower and lender. Also, the amount that needs to be borrowed and other terms and conditions for repayment.  Always ensure that the agreement spells out the payment details. Especially because there is always an off-chance there are late payments or default.

The Principal or Borrowing Amount

The principal amount to be borrowed is the actual money that will be lent to the borrower at the beginning of the loan.  As you pay the loan off, the principal balance will update to reflect the balance remaining.

Term Loan

In essence, the term loan specifies how long the loan will be active and how often the loan payments will occur.  At the end of the loan term, it is typical that the borrower will pay off the remaining principal of the loan in full.  

Interest Rate

Essentially, the interest rate is used to calculate the loan payment that needs to be made at the specified loan term. Typically, interest rates for the term loans are set out as an annual or monthly number.  

Payment Details

Importantly, ensure that payment details in the term loans are accurate. These details specify when to make the payments and (for example, 5th day of each month) and how to make these payments.

Late Fees and Default

Generally, the term loan can specify any fees to pay if the monthly payments are late. In the unfortunate event that payments cannot be consistently met, the loan will be in default. Specify in this area under what conditions the loan will be in default.

Collateral Requirements

Specifically, you can secure certain loans with collateral.  These are called secured loans.  Essentially, the collateral is typically an asset that has monetary value. The assets can be hard asset. For example, cars, houses, etc. Or, those assets can be less tangible such as invoices and accounts receivables. Basically, this collateral allows the lender to monetize the assets in the event of default.

When should you use a Term Loan?

Essentially, a term loan protects the lender in the off chance that a borrower is not able to repay the obligation. As a borrower, this document also provides a framework for the details of the loan and how the payment terms.

Should I have a secured or unsecured Term Loan?

In essence, the lender will specify whether or not you can secure the loan by collateral. Or, whether it can be unsecured. This is likely to be via a personal guarantee. Ultimately, the lender will make this decision after considering the background of the borrower in combination with the risk tolerance of the lender.

Conclusion

In summary, a Term Loan protects both parties as it provides the mutual understanding of the repayment of the loan over time.  For the lender, especially, use this template to mitigate any risk with the borrower.

You Might Also Like

Along with this document, make sure you see these other templates in our library:

The Zegal Template Library

Zegal's template library is a list of essential and premium business templates for your everyday legal needs.

Save money and time without sacrificing quality or missing vital legal requirements. Whether you're a startup or a larger enterprise, Zegal lets anyone create a legal agreement.

Let us take care of the legals so you can focus on running your business.

If you need more help, our "Talk to a Lawyer" feature gives you access to a qualified lawyer to get all the expert advice you need.

Try it for free today!