Intercompany Loan Agreement Format

1. Introduction

An intercompany loan agreement is a formal contract between two entities within the same corporate group where one entity (the lender) provides a loan to another entity (the borrower). This agreement outlines the terms and conditions of the loan, including interest rates, repayment schedules, and any other pertinent details. Such agreements are crucial for ensuring clarity, compliance, and proper financial management within the corporate group.

2. Key Components of an Intercompany Loan Agreement

2.1. Loan Amount and Currency

• Loan Amount: Clearly specify the principal amount of the loan.
• Currency: Define the currency in which the loan will be repaid.

2.2. Interest Rate

• Rate: Indicate the interest rate applicable to the loan. This could be fixed or variable.
• Calculation: Specify how the interest will be calculated (e.g., annually, monthly).

2.3. Repayment Terms

• Schedule: Detail the repayment schedule, including start date, frequency of payments (e.g., monthly, quarterly), and final maturity date.
• Method: Describe the method of repayment (e.g., cash, bank transfer).

2.4. Purpose of the Loan

• Usage: Clearly state the intended use of the loan proceeds.

2.5. Covenants and Conditions

• Affirmative Covenants: Outline obligations of the borrower, such as maintaining financial records or insurance.
• Negative Covenants: Describe restrictions, such as limits on additional borrowing.

2.6. Representations and Warranties

• Borrower’s Representations: The borrower’s assurances regarding their authority, compliance with laws, and financial condition.
• Lender’s Representations: The lender’s assurances regarding their ability to lend the funds.

2.7. Events of Default

• Definition: Specify what constitutes an event of default (e.g., missed payments, insolvency).
• Consequences: Outline the remedies available to the lender in case of default.

2.8. Governing Law and Jurisdiction

• Law: Indicate which jurisdiction’s laws govern the agreement.
• Dispute Resolution: Outline the process for resolving disputes.

3. Sample Intercompany Loan Agreement

3.1. Title:

INTERCOMPANY LOAN AGREEMENT

3.2. Parties:

This Agreement is made between:

1. Lender: [Lender’s Name], a corporation organized under the laws of [Lender’s Jurisdiction].
2. Borrower: [Borrower’s Name], a corporation organized under the laws of [Borrower’s Jurisdiction].

3.3. Loan Amount and Currency:

The Lender agrees to loan the Borrower an amount of [Amount] [Currency].

3.4. Interest Rate:

The loan will bear interest at a rate of [Interest Rate] per annum.

3.5. Repayment Terms:

The Borrower shall repay the loan in [Number] installments of [Amount] each, commencing on [Start Date] and concluding on [Maturity Date].

3.6. Purpose:

The Borrower agrees to use the loan proceeds for [Specific Purpose].

3.7. Covenants and Conditions:

• Affirmative Covenants: The Borrower agrees to maintain its financial records in accordance with [Accounting Standards] and to provide quarterly financial statements to the Lender.
• Negative Covenants: The Borrower shall not incur any additional debt without the Lender’s prior written consent.

3.8. Representations and Warranties:

• Borrower’s Representations: The Borrower warrants that it is duly authorized to enter into this Agreement and that it will comply with all applicable laws.
• Lender’s Representations: The Lender warrants that it has the necessary authority and capability to provide the loan.

3.9. Events of Default:

Events of default include, but are not limited to, failure to make timely payments, insolvency, or breach of any material term of this Agreement. In case of default, the Lender may accelerate the loan and demand immediate repayment.

3.10. Governing Law and Jurisdiction:

This Agreement shall be governed by and construed in accordance with the laws of [Jurisdiction]. Any disputes arising out of or in connection with this Agreement shall be resolved by [Dispute Resolution Mechanism].

4. Conclusion

An intercompany loan agreement is a critical document for managing financial transactions between related entities. By clearly defining the terms and conditions, it ensures that both parties have a mutual understanding and can mitigate potential disputes. Companies should tailor the agreement to fit their specific needs and ensure compliance with relevant laws and regulations.