Credit agreement and loan agreement

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Credit and loan agreements are often confused, but despite many similarities, there are important differences between them. 

Loan agreement

By a loan agreement, the creditor (lender) delivers a fungible thing to the debtor (borrower) who can use it in any manner and must return a thing of the same kind after some time. Therefore, funds can also be a fungible thing, where interest may be agreed upon in the case of a pecuniary loan for consumption or a loan for consumption provided in securities (Section 2392 of the Civil Code), but it is not necessary. A loan agreement is a real contract, which is only concluded upon the handover of the thing, and the debtor as the recipient of the fungible thing is thus not entitled to enforce its provision. A loan for consumption can only be taken out once.

Therefore, unlike a credit agreement, a loan agreement allows for the interest-free provision of funds but, on the other hand, the release of funds is not enforceable.

Credit agreement

By a credit agreement, the creditor (credit provider) undertakes to provide the debtor (credit recipient) with funds up to a specific amount at the debtor’s request and for the debtor’s benefit, and the debtor undertakes to return the funds provided and pay interest. Therefore, there must be a request for the credit (“at the request”) (Section 2395 in connection with Section 2398 of the Civil Code). The debtor as the recipient of the funds may force the creditor to provide the funds. The credit can be granted to the benefit of the debtor, i.e. on behalf of a third party, and, unlike in the case of a loan agreement, can be generally drawn repeatedly up to the credit limit, i.e. in several tranches.

Given the similarity of these types of contracts, there may be cases where the contracts cannot be easily distinguished and there will be a dispute as to which provisions of the law apply to a given contract. In the event of a dispute, the court judges the type of contract by its content, not by the name of the contract.

What situations do we typically handle for our clients regarding credit and loan agreements?

  • The borrower “breached” a loan agreement
  • I want to recover money from a debtor
  • Recovery of receivables
  • Demands for payment
  • Communication with debtors
  • Representation in insolvency proceedings
  • I need to draw up a loan agreement
  • I need to review a loan agreement
  • Screening of the debtor
  • Representation in court proceedings with the debtor
  • Assessment of the validity of a bill
  • Process of enforcing a bill
  • Issuance, “transfer” and enforcement of bills
  • Revision of credit agreements
  • Drawing up credit agreements
  • Assessment of a credit agreement with a bank or other financial institution