What to Look Out For in Loan Agreements

Businesses need to consider a few essential matters when assessing a loan agreement, according to DynamicBusiness.com.au.

Interest rates

Businesses need to understand whether they should opt for a fixed or variable rate and what their repayments are schedules to be. Fixed rate loans provide more certainty but less flexibility with regard to early repayments. Variables rates vary in line with market conditions but offer more flexibility. It’s useful to check the default rate of interest which applies when the loan is in arrears.

Repayment terms

It’s important to know if the loan is fixed term or payable on demand. Payable on demand loans allow the lender to ask for payment in full at any time. Fixed term loans are usually preferable due to the certainty they provide the business owner.

Commitment

Committed loans allow the borrower to drawn on the loan as soon as the agreement is entered into. Uncommitted loans require the borrower to provide additional information before they can access funds.