Loan letter to corporate borrower
A loan letter is often used by a lender when the loan granted is simple and the terms and conditions are minimal.
It serves to inform the borrower that the lender is agreeable to make available the loan on the terms and conditions stated in the loan letter. It also becomes the primary instrument evidencing the loan when the borrower's acceptance of the loan is indicated by signing on the duplicate copy of the loan letter and returned to the lender.
However, if the borrower is a corporation, drawdown of the loan is usually made subject to the fulfillment of condition(s) precedent. A common condition precedent required to be fulfilled is the submission to the lender by the corporate borrower of a resolution passed by its board of directors authorising the request and acceptance of the loan. If the loan is to be secured by a joint and several guarantee, then the submission to the lender of such guarantee duly executed by the guarantor(s) is also made as a condition precedent to the drawdown of the loan.
A sample loan letter for a loan to a corporate borrower secured by a joint and several guarantee is provided below.
It is intended to be read as a guide only and shall not in any way whatsoever be taken to constitute, or be relied upon as, legal advice.
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[date]
[Name and address of borrower]
Dear [Sirs],
Re: Loan of [loan amount]
The above matter refers.
The loan
I am pleased to make available to you, at your request, a loan in the principal sum of [loan amount] upon the terms and conditions of this letter. Subject to the fulfillment of the conditions precedent set-out below, you may draw the loan in one or more amounts on no less than [3] business days’ request to me but so that no drawing may be made after [date].
The loan shall be repaid together with interest on it on [date] irrespective of whether formally demanded or not. You may repay the loan or any part of it early but may not reborrow any amount so repaid.
Interest
The principal amount of the loan outstanding from time to time will carry interest at the rate of [ ] % per annum accruing daily and payable in arrears. In the event that you default in the payment or repayment on the due date of any sum from time to time due under this letter, interest will accrue on a daily basis (payable on demand) on the amount in respect of which default has been made from the date of default until actual payment (both before and after judgment) at the rate of [ ] % per annum.
Repayment
You will make all payments due and payable under or in respect of the loan for value on the due date in freely transferable funds to me at my account no _________ with [Bank] of [address] or such other account as I may from time to time notify you in writing. If any payment becomes due on a day which is not a day on which banks are generally open for business in [your city/town], the due date of such payment will be extended to the next business day. You will make all payments under or in respect of the loan without set-off or counterclaim and free and clear of any withholding or deduction for or on account of tax, save as may be required by law.
Security
The loan shall be secured by a joint and several guarantee by the following persons:
(a) [name of guarantor (usually a director-shareholder)] of [address]; and
(b) [name of guarantor (usually a director-shareholder)] of [address]
guaranteeing the repayment of the loan together with all interest on it in their personal capacities as principal debtors and not merely as sureties.
Conditions precedent
The obligations to make available the loan to you are subject to the fulfillment in a manner satisfactory to me of the following conditions precedent at each drawdown of the loan:
(a) this letter has been duly signed and/or executed to signify your acceptance of the loan and returned to me;
(b) a certified true copy or an extract of your Board of Directors' resolution authorising the request and acceptance of the loan and the execution of this letter and naming the authorised signatory having conduct of all matters in connection with the loan on your behalf; and
(c) the joint and several guarantee duly executed by the abovenamed guarantor(s) as security for the loan have been delivered to me.
Acceleration of loan
Notwithstanding the provisions of this letter, the loan and all interest on it will become due and payable or repayable forthwith on demand by me if (i) you fail to pay any sum under this letter when due or you are in breach of any provision of this letter or any guarantor is in breach of any provision of the joint and several guarantee referred to above; or (ii) you are in default under any other financial obligation to any person; or (iii) an administration order is made in relation to you or a receiver or manager or administrative receiver is appointed of you or any of your assets or you enter into liquidation; or (iv) any petition is presented, any resolution is proposed or any other steps or proceedings are taken which may lead to any such occurrence referred to in (iii) above; or (v) any distress or execution is levied on or affects any of your property or assets; or (vi) you are or are deemed to be insolvent or unable to pay your debts; or (vii) you cease to carry on business.
Notices
Any demand or notice in respect of this letter and/or the loan will be in writing and (without prejudice to any other effective means of serving it) may be served on you personally or by post and either by delivering it to any of your officers at any place or by despatching it addressed to you at your registered or principal office for the time being or any of your places of business last known to me. Any such demand or notice delivered personally shall be deemed to have been received immediately upon delivery. Any such demand or notice sent by post shall be deemed to have been received at the opening of business on the first working day following the day on which it was posted, even if returned undelivered.
Miscellaneous
(a) Time shall be of the essence in respect of your obligations under or in respect of the loan but no failure by me to exercise or delay by me in exercising any right or remedy under or in respect of the loan shall operate as a waiver of it, nor shall any single partial or defective exercise by me of any of such right or remedy preclude any other or further exercise of that or any other right or remedy.
(b) You will pay, on demand and on a full indemnity basis, all costs and expenses which I may from time to time incur in connection with this letter and/or the loan.
(c) If any of the provisions of this letter is or becomes invalid, illegal or unenforceable under any law, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired.
(d) This letter shall be governed by and construed in accordance with the laws of [country].
To accept the loan upon the terms and conditions of this letter, please sign and return the enclosed copy within 14 days from the date of this letter, failing which this letter will lapse and the loan will not be available to you.
Yours sincerely,
[Name of lender]
I, [name of borrower's authorised signatory], a [director] of [name of corporate borrower] and duly authorised to accept the loan and execute this loan letter hereby accepts the abovementioned loan of [loan amount] on behalf of [name of corporate borrower] upon the terms and conditions provided by this loan letter.
For and on behalf of
[Name of borrower]
[name of authorised signatory]
[position]
Date:
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Related
Corporate Borrower's Directors Resolution