Loan Agreements and Deeds of Charge

Loan Agreements and Deeds of Charge

What is a Loan Agreement?

A Loan Agreement is a legal obligation that a borrower will repay the principal amount loaned [and interest] to the Lender pursuant to the terms of the Loan Agreement. A Loan Agreement is enforceable and offsets any argument that the loan was a gift (particularly in family or friend relationships).

Why might I need a Loan Agreement?

Family – If your child’s partner doesn’t recognize any financial loan you made to the relationship at its end (or claims it was a gift), it can become very costly to remedy (gathering evidence, drafting affidavits, involving witnesses, etc).

Friends – What if a friend simply won’t repay and ignores you, its difficult to prove the terms of any loan or repayment structure and again becomes a costly “your word against theirs” scenario.

Business Partners – lending funds to a business, whether a company or Trust, you might be left out in the cold if the business is wound up, or repayment terms aren’t what was agreed.

A Loan Agreement can be drafted to avoid these unnecessary costs and allow you to enforce the agreement you had when the money was loaned. Why pay more money to recover what is already yours?

Loan Agreements offer protection

Having a Loan Agreement in place protects you from later arguments with the borrower/s. It sets out how you can control repayments and the agreed interest (if any) you were to be repaid. It is a business record and may be necessary in some instances, for tax purposes, legislative compliance, or proper accounting practices.

Nothing will necessarily protect you from a borrower going bankrupt, but a Loan Agreement will be a factor in deciding who the debtor will try and placate first when financial pressures mount.

At GJA Law we understand the specific legal requirements and ramifications of Loan Agreements, and the importance of one to your peace of mind when dealing with others not necessarily at “arm’s length”. We can draft a tailored Loan Agreement, that will protect your financial risk and thus, your business.

Contact us to draft a Loan Agreement for your peace of mind.

Deeds Of Charge

What are Business Deeds of Charge?

A Deed of Charge is a document between two companies that creates a security (charge) against the borrower’s assets (plant, machinery, goodwill, etc) for loan repayments. The charge is typically in the form of a “fixed and floating” charge, which means it attaches to tangible assets, such as plant and machinery (fixed) and intangible assets, such as goodwill and fluctuating bank account balances (floating).

Deeds of charge are really mortgages over business assets for company loans.

Deeds of Charge must be registered with ASIC within 45 days of creation for the security to be effective.

Why do I need Deeds of Charge?

Deeds of Charge give protection for your capital investment in a company.

Deeds of Charge give you control over business assets in the event of default.

Deeds of Charge are enforceable.

Not all Deeds of Charge are appropriate to all businesses. Specific advice about your circumstances and tailoring a solution is what GJA Law can do for you.

Consequences of not having Deeds of Charge

Customers may delay payments well beyond your expectations and you may not even be able to charge interest on that foregone money.

You may not be able to recover business assets if payment is not made because ownership has been transferred.

You can’t regulate what is to happen in the event of a dispute.

Deeds of Charge offer protection

Deeds of Charge drafted by GJA Law can;

· ensure you set out your payment terms and consequences if not met,

· regulate the way in which the repayments are made,

· limit your liability for any defaults,

· outline a course of action in the event of a problem,

· retain security until paid,

· detail any insurance and ongoing business practice requirements/obligations,

At GJA Law, we understand how vital it is to secure your loan. Deeds of Charge drafted for your specific needs will set out a framework for you to better manage, assess performance and recover your investment.

Contact us to draft a Loan Agreement for your peace of mind

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