The most widespread but not the cheapest way to raise funds for business is to receive them as a loan from a bank or other financial institution. In order to obtain a loan, company must conclude a loan agreement with the bank or other financial institution. What should be known know about this agreement?
Important peculiarities
Under a loan agreement, a bank or other financial institution (the lender) undertakes to provide cash (loan) to the borrower in the amount and on terms established by the agreement, and the borrower undertakes to repay the loan and pay interest (part 1 of Art. 1054 of the Civil Code of Ukraine, hereinafter – Civil Code). Similar definition is contained in para.14.1.258 of the Tax Code of Ukraine.
The loan agreement must be concluded in writing. The conclusion of such an agreement not in writing makes it in vain (Part 2 of Art. 1055 of the Civil Code). Obligatory notarization of this agreement is not required by any normative legal act. Consequently, it is not necessary to notary certify it.
Essential conditions
All essential conditions must be specified in the loan agreement. Namely:
1) loan amount;
2) loan term (it must be determined if it is a short-term (up to 1 year), medium-term (up to 3 years) or long-term (over 3 years) loan;
3) conditions for the provision and repayment of principal amount of loan;
4) types of collateral of the borrower (surety, mortgage, etc.);
5) rules for payment calculation (interest rate) for loan use;
6) procedure for making a payment for the use of funds, etc.
Conditions for conclusion
Before a bank or another financial institution concludes a loan agreement with a business entity, they have to check the state of the borrower’s economic activity, its solvency, and to predict the risks of non-repayment of the loan. Usually they require from the borrower to provide various documents that confirm the ability of the entity to repay the funds borrowed. If there is the confidence in the return of such loans by a certain entity, the bank concludes a loan agreement with it and provides with a loan.
