Finance Agreement Law

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 What Is a Finance Agreement?

A finance agreement, also known as a loan agreement or financial contract, is a legally binding document that outlines the terms and conditions of a financial transaction between two parties. These two parties are typically a creditor (lender) and a borrower (debtor).

Under contract laws, the finance agreement sets out the rights and responsibilities of both parties and establishes the framework for repayment of the borrowed funds.

A finance agreement relates to a business plan in that it is often used to secure the necessary funds to execute the business plan. In other words, the finance agreement provides the financial resources for a business to achieve its goals and objectives, as outlined in the business plan.

What Is Contained in a Finance Agreement?

A finance agreement contains several key elements that define the relationship in a contract between the creditor and the borrower. These typically include the following:

  1. Loan amount: The principal sum of money being borrowed.
  2. Interest rate: The percentage charged on the loan amount over time.
  3. Repayment schedule: The timeline for the borrower to repay the loan, including the frequency and amount of payments.
  4. Collateral or security: Assets pledged by the borrower to secure the loan, which the creditor may seize in case of default.
  5. Covenants: Conditions and restrictions imposed on the borrower’s activities, such as maintaining certain financial ratios or not taking on additional debt.
  6. Default provisions: The circumstances under which the borrower is considered to be in default and the consequences of default.
  7. Representations and warranties: Statements made by the borrower regarding their financial position and ability to repay the loan.
  8. Governing law: The jurisdiction whose laws will govern the interpretation and enforcement of the agreement.

What Are Some Legal Issues Associated With a Finance Agreement?

Legal issues associated with finance agreements may include signing a finance agreement under circumstances of duress or fraud, unconscionability, or illegal provisions.


If a party is forced or threatened into signing a finance agreement, it may be considered invalid due to duress.

For example, John, a small business owner, is seeking a loan to expand his business. A lender approaches him, offering a loan with high-interest rates and unfavorable terms. John initially refuses, but the lender threatens to harm John’s family if he doesn’t sign the finance agreement. Feeling threatened and fearing for his family’s safety, John signs the agreement. In this case, the finance agreement may be considered invalid due to duress, as John was coerced into signing under the threat of harm.


If a party intentionally misrepresents material facts or conceals information to induce the other party to enter into the finance agreement, it may be considered fraudulent and voidable.

For example, Sarah is seeking a loan to start her new business venture. A lender approaches her with a seemingly attractive finance agreement. The lender intentionally misrepresents the interest rate by stating it will remain fixed for the entire term of the loan. However, the fine print in the agreement specifies that the interest rate is variable and can increase significantly over time.

Sarah signs the agreement, relying on the lender’s misrepresentation. Later, when the interest rate increases, Sarah struggles to make the payments. In this situation, the finance agreement may be considered voidable due to the lender’s fraudulent misrepresentation of the interest rate.


A finance agreement may be deemed unconscionable if its terms are grossly unfair or oppressive to one party.

For example, Tom, a first-time entrepreneur, is in desperate need of funds to launch his startup. A lender offers him a finance agreement with an exorbitant interest rate and numerous hidden fees that are not disclosed upfront. Additionally, the agreement contains a provision allowing the lender to seize all of Tom’s personal assets in the event of a default, even though the loan amount is relatively small.

Due to his desperation for funds, Tom signs the agreement without fully understanding the terms. Later, when he realizes the oppressive nature of the agreement, he seeks legal advice. The finance agreement may be deemed unconscionable if a court finds its terms to be grossly unfair or oppressive to Tom.

Illegal Provisions

If the finance agreement contains provisions that violate the law, those provisions may be unenforceable or render the entire agreement void.

For example, Jane enters into a finance agreement with a lender to fund her cannabis business. While the use and sale of cannabis are legal in her state, they remain illegal under federal law.

The finance agreement contains provisions that require Jane to use the loan proceeds exclusively for her cannabis business, effectively requiring her to engage in activities that violate federal law. In this case, the provisions related to the use of funds may be unenforceable or render the entire agreement void due to its illegal nature.

Is a Damages Award Available?

A damages award may be available in cases where a party breaches the finance agreement or suffers losses due to another party’s wrongful conduct, such as fraud or misrepresentation.

For example, Lisa, a business owner, enters into a finance agreement with a lender to obtain funds for purchasing new equipment for her company.

The lender represents that the loan will have a fixed interest rate for the entire term, and based on this information, Lisa calculates that her business can afford the monthly payments. However, after signing the agreement, Lisa discovers that the interest rate is actually variable and increases significantly after a few months.

As a result, her business struggles to make the loan payments, leading to financial difficulties and the eventual loss of some contracts due to the inability to upgrade the equipment as planned.

In this case, Lisa has suffered losses due to the lender’s misrepresentation regarding the fixed interest rate. She may be able to seek a damages award to compensate for the financial harm caused by the lender’s wrongful conduct. Depending on the specific circumstances, the damages could include the additional interest paid, the lost profits from the contracts, and any other consequential damages suffered by Lisa’s business as a result of the lender’s misrepresentation.

Do I Need a Lawyer for a Financial Agreement?

Hiring a contract lawyer is highly recommended when dealing with finance agreements. A knowledgeable attorney can help draft, review, and negotiate the terms of the agreement to protect your interests and ensure compliance with applicable laws. A lawyer can provide you with valuable guidance in case any disputes or legal issues arise during the course of the financial arrangement.

LegalMatch is an online legal matching service that connects clients with experienced lawyers in various practice areas, including contract law and finance law. LegalMatch’s platform allows clients to submit their legal issues and receive responses from multiple lawyers who are interested in taking their cases.

LegalMatch’s system also provides clients with detailed profiles of attorneys, which include their experience, credentials, and client reviews. This information can help you make informed decisions when choosing an attorney to represent you.

Don’t wait any longer. Use LegalMatch today to help you find a qualified attorney to assist you with your financial agreement, ensuring that your interests are protected, and the agreement complies with applicable laws.

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