Loan agreements can protect the interests of banks, borrowers

Lending money is a tricky business. Though New Jersey banks, credit unions and other financial institutions handle these matters regularly, it is important that the details of every loan transaction are reviewed carefully. Loan agreements work to protect both the lender and the borrower, and it is crucial that those terms meet the needs of everyone involved.

The agreement can protect a banking institution by making it clear what is expected from the borrower. Important information that these agreements include are the terms of the repayment, any fees that may apply and when they may apply, and the interest rate applied to the loan. It can also explain what actions could be taken in the event that the borrower falls behind on payments or defaults on the loan.

In addition to the transaction details, the loan agreement will also include the following information:

• Any collateral requirements
• The borrower’s information, such as name, phone number and address
• Information for any co-signers on the loan
• Positive and negative covenants
• Penalties and default repercussions

Banking institutions lend out hundreds of thousands of dollars at a time in many cases. As a result, it is critical that their loan agreements are legally binding and include the proper protective terms. Financial institutions may want to ensure that their agreements comply with New Jersey state laws and update their agreements periodically to avoid applying the wrong terms to a loan, basing their loans on outdated laws or otherwise putting their interests at risk with faulty agreements.

• Category: Corporate and Banking