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Loan Note for Hong Kong

Loan Note Template for Hong Kong

A Hong Kong law-governed Loan Note is a formal debt instrument that evidences and documents a loan agreement between a lender and borrower. It contains detailed terms regarding the loan amount, interest rate, repayment schedule, and other key provisions. The document complies with Hong Kong regulatory requirements, including those under the Money Lenders Ordinance and Securities and Futures Ordinance where applicable. It can be used for both corporate and individual borrowing, and may include security arrangements, guarantees, and specific covenants depending on the nature of the transaction.

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What is a Loan Note?

The Loan Note is a crucial financing document used in Hong Kong to formalize lending arrangements and create legally binding obligations between parties. It serves as both evidence of debt and a contractual framework governing the lending relationship. When drafting a Loan Note under Hong Kong law, consideration must be given to regulatory requirements, including interest rate restrictions, registration requirements, and stamp duty obligations. The document is commonly used in various contexts, from simple bilateral loans to complex corporate financing arrangements, and can be either secured or unsecured. The contents typically cover loan amount, interest calculations, repayment terms, events of default, and enforcement mechanisms, with additional provisions for security or guarantees where applicable.

What sections should be included in a Loan Note?

1. Parties: Identifies the lender and borrower with full legal names and addresses

2. Background: Sets out the context of the loan and purpose

3. Definitions: Defines key terms used throughout the document

4. Loan Amount and Purpose: Specifies the principal amount and permitted use of funds

5. Interest: Details the interest rate, calculation method, and payment frequency

6. Repayment Terms: Specifies repayment schedule, method, and prepayment provisions

7. Representations and Warranties: Standard declarations by the borrower about their status and capacity

8. Covenants: Ongoing obligations of the borrower during the term of the loan

9. Events of Default: Lists circumstances that constitute default and consequences

10. Payments: Details payment mechanics, currency, and timing

11. Notices: Specifies how formal communications between parties should be made

12. Assignment: Provisions regarding transfer of rights under the note

13. Governing Law and Jurisdiction: Confirms Hong Kong law governs and jurisdiction for disputes

What sections are optional to include in a Loan Note?

1. Security: Required if the loan is secured by any assets or guarantees

2. Guarantor Provisions: Include when there is a guarantor for the loan

3. Tax Gross-Up: Include if tax implications need to be addressed explicitly

4. Change of Control: Include for corporate borrowers where ownership changes may affect the loan

5. Financial Covenants: Include for corporate borrowers where financial metrics need to be maintained

6. Information Undertakings: Include when regular financial or other reporting is required

7. Transferability: Include if the note is intended to be transferable or tradeable

8. Subordination: Include if the loan needs to be subordinated to other debt

What schedules should be included in a Loan Note?

1. Repayment Schedule: Detailed breakdown of repayment dates and amounts

2. Form of Transfer Certificate: Standard form for transferring the note if transferable

3. Security Details: Description of any security or collateral if applicable

4. Calculation of Interest: Detailed methodology for interest calculations if complex

5. Form of Drawdown Notice: Standard form for requesting disbursement if multiple drawdowns

6. Financial Covenant Calculations: Formulas and methods for calculating financial covenants if applicable

Authors

Alex Denne

Head of Growth (Open Source Law) @ Ƶ | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents

Jurisdiction

Hong Kong

Publisher

Ƶ

Document Type

Loan Agreement

Sector

Banking

Cost

Free to use

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