A lending agreement (loan agreement) is a formal contract between a lender and a borrower.
Lending agreements spell out all the details of the loan, such as the principal amount, interest rate, amortization period, term, fees, payment terms and any covenants. They also outline the rights of a lender to collect payment if the borrower defaults.
Every lending agreement is slightly different. For entrepreneurs, it is important to read and understand the terms prior to executing them. It also helps to get independent legal advice, particularly for more complex lending agreements like commercial mortgages or debentures.
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