What Is The Meaning Of A Loan Agreement

The forms of loan agreements vary enormously from industry to industry, from country to country, but characteristically, a professionally designed commercial loan agreement will include the following conditions: However, within these two categories there are different subdivisions such as interest-based loans and lump-sum loans. It is also possible to subcategorize whether the loan is a secured loan or an unsecured loan, and whether the interest rate is fixed or variable. Credit agreements are usually in written form, but there is no legal reason why a loan agreement cannot be a purely oral agreement (although verbal agreements are more difficult to enforce). The loan contracts of commercial banks, savings banks, financial companies, insurance companies and investment banks are very different from each other and all serve a different purpose. “Commercial banks” and “savings banks”, because they accept deposits and benefit from FDIC insurance, generate loans that incorporate the concepts of “public trust”. Prior to intergovernmental banking, this “public trust” was easily measured by state banking regulators, who could see how local deposits were used to finance the working capital needs of local industry and businesses and the benefits associated with employing this organization. “Insurance organizations” that charge premiums to provide life or property and casualty insurance have created their own types of loan contracts. The credit agreements and documentation standards of “banks” and “insurance companies” evolved from their individual cultures and were governed by policies that somehow addressed the liabilities of each organization (in the case of “banks”, the liquidity needs of their depositors; in the case of insurance organizations, liquidity must be linked to their expected “claims payments”). For commercial banks and large financial corporations, “loan agreements” are generally not categorized, although “loan portfolios” are often roughly divided into “personal” and “commercial” loans, while the “commercial” category is then divided into “industrial” and “commercial real estate” loans.

“Industrial” loans are those that depend on the cash flow and creditworthiness of the company and the widgets or services it sells. “Commercial real estate” loans are those that repay the loans, but this depends on the rental income paid by tenants who rent space, usually for long periods. There are more detailed categorizations of loan portfolios, but these are always variations around broader themes. “investment banks” create loan agreements that meet the needs of the investors whose funds they wish to attract; “Investors” are still sophisticated and accredited bodies that are not subject to bank supervision and are subject to the need to respond to public trust. Investment banking activities are supervised by the SEC and its main objective is to know whether correct or appropriate disclosures are made to the parties providing the funds. .