This document is a basic loan agreement.
Loan transactions can be fairly simple or extremely complex depending on the following:
- parties to the transaction;
- nature of the loan;
- manner of repayment of the loan amount,
- type of interest payable; and
- security to be provided.
The drafter of loan agreements should carefully customise any precedent and at all times take into account the peculiarities of each transaction. Even when representing banks or financial institutions using standard form documents, it is important to include a number of different variables based on the different circumstances of individual borrowers.
Drafters of loan agreements in Australia should be aware of the legislation that either proscribes the type of provisions to be incorporated in these agreements or directly impacts loan transactions in Australia.
- Consumer credit legislation
Consumer credit law in Australia is governed by the National Consumer Credit Protection Act 2009 (Cth) (NCCP) which includes the National Credit Code (NCC). The NCC applies to credit contracts where:
- the lender is in the business of providing credit;
- a charge is made for providing the credit;
- the debtor is a natural person or strata corporation (a strata corporation is a body made up of owners in a strata scheme and has responsibility for maintaining and repairing the common property and managing the finances of the strata scheme, taking out insurance, administering the by-laws, keeping records and accounts for the strata scheme); and
- the credit provided is for personal, domestic or household purposes, to purchase, renovate or improve residential property for investment purposes, or to refinance credit previously provided for this purpose.
The NCC does not apply to certain loans including low cost short term credit contracts (62 days or less), certain small value credit transactions, partnership loans and student loans.
Most banks in Australia voluntarily agree to bind themselves to the Banking Code. The Banking Code sets standards of good banking practice to be followed by banks when dealing with individuals and small business customers and their guarantors. The provisions of the Banking Code are enforceable against those banks who bind themselves to its terms.
- Banking (Foreign Exchange) Regulations 1959 (Cth) (Regulations)
It is important to ensure that any loan agreement relating to a loan made in foreign currency or to be paid in foreign currency is not vulnerable to interpretation as a transaction involving the buying and selling of foreign currency. Otherwise, the agreement will be subject to the Regulations.
- Personal Property Securities Act 2009 (Cth)
This act regulates the provision and registration of personal property securities.
This precedent sets out the basic terms to be incorporated into a loan agreement. The precedent should be customised for each loan transaction, including:
- the identity of the lender, creditor and borrower;
- the nature of the loan;
- agreed payment terms;
- interest repayments; and
- security to be provided, if any.
For the purposes of this precedent, the lender or credit provider is a company. However, the precedent can be customised for use where the lender is an individual. This loan agreement does not take into account the requirements of the NCC and it will need to be amended when drafting a loan agreement that needs to comply with the NCC.
- Guarantee of payment of loan
- General security deed
- Amendment and restatement agreement
- Deed of priority
- Forbearance of debt agreement
- Deed of assignment of debt
- Real property mortgage
- Loan agreement checklist
This document has been authored for Lexis Nexis by Elise Margow, Principal, Legally Speaking.
This document is prepared with the assistance of Specialist Editors Geoff Geha, Partner, Clayton Utz and Karen Lee, Principal and Consultant, Legal Know-How.