Bill West reports:
"Writing loan agreements should be an exercise that safeguards the rights of all parties in the loan agreement and forestalls any potential disagreements...Include the important details in the loan agreement such as repayment terms, contact information of all parties, payment schedule, security, interest rates and cancellation policy. It should state the amount of money loaned to the borrower by the lender. Write this amount in words and numbers to avoid any miscommunication. Indicate the interest rate in the agreement because failure to do so would render the loan a gift. The loan contract must also spell out the modalities of handling any defaults in payment...[Y]ou can download a loan agreement template from websites such as ContractStore.com or LoanBack.com. Such templates often contain all the necessary clauses of a loan agreement focusing on issues such as interest charges, repayment conditions and borrower details. You can use these templates repeatedly as long as the loan agreements are similar. You can also edit them to fit your circumstances...You can draft an effective loan agreement with the assistance of an attorney to advise you on the advantages or disadvantages of the loan arrangement. Enlisting the services of a lawyer also enlightens you on the laws and requirements you must follow. You may also learn of tax benefits attached to the agreement from the lawyer. When looking for legal counsel, ask prospects whether they ever drafted a loan contract. Furthermore, inquire about the costs involved in drafting the agreement by yourself or entrusting the lawyer with the task...A promissory note is an alternative to a loan agreement when documenting any borrowed money...It is easy to enforce the terms of the note because it contains straightforward enforcement procedures that provide efficient solutions against defaulting borrowers. In writing a promissory note, include details about the promisor, or the party undertaking the promise to repay the loan. Other important details relate to the promisee, date of the agreement and the consideration, which is the value of the loan. Avoid setting high rates because it can amount to usury, which may be illegal in your state...[A]void agreeing to arbitration clauses or jury trial waivers, which prevent you from exercising your rights and obligations under the agreement. As a lender, the clause could prevent you from taking legal action in the event that the borrower violates the agreement. When you are borrowing money, avoid including liability releases in the agreement because they deprive you of the right to a claim against the lender if terms are violated. Seeking legal guidance could help you avoid the dangers of liability releases."