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Loan agreement

The loan agreement is a legal contract which details the terms of the loan, the interest rate, its repayment schedule, assets pledged as security to back the loan, and any other terms the borrower and lender may have agreed to as a condition of issuing the loan.

Expanded Definition

Loans to businesses often include covenants which require the borrower to maintain specified asset ratios on its balance sheet. If the financial condition of the business deteriorates such that the covenants are violated, the lender can call the loan or can force the borrower into bankrutcy court. Some covenants also address issues such as changes in ownership or control of the board of directors, etc.

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