This document can be used to create a legally binding document that sets out the terms and conditions of a loan between individuals or companies. You can use this document if you are making a one-off loan to friends or family, or between businesses.
It can be tailored to reflect a simple loan that is repayable on demand, or for a fixed term loan where payments are made by instalment, as well as to include further options such as guarantors and/or security for the loan.
How should this document be used
This document should be carefully read by all parties. Then, each party should sign and return a copy, and once signed, every party should be given a copy. You may wish to have the signatures witnessed to avoid any future disputes.
The money to be loaned should then be advanced on the date set out in the agreement and repayment will commence in accordance with the terms of the agreement.
If the loan is to be secured by a guarantee, the guarantor and the lender should also sign the guarantee agreement attached to the document.
If any party wishes to amend the agreement in the future, all parties should agree to do so, and that agreement, and the amendments should be recorded in writing and signed by all parties.
Please note that if the document is being signed on behalf of a company, it should be signed twice; either by two directors, or by a director and company secretary unless the company is a one-person company.
Any applicable law
The agreement is generally subject to broad principles of contract law.
It is advised that consideration should also be had of s.6 of the Limitation Act 1980 which deals with the time limit within which any loan, including those which are acknowledged by a promissory note, can be enforced.
In addition, some aspects of the Consumer Credit Act 1974 may apply.
Finally, lenders should consider the Financial Services and Markets Act 2000 to determine whether they need to be authorised to make the loan in question, particularly if they regularly make loans, or are making the loan for business purposes.
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