An Unsecured Loan Agreement establishes credit terms without collateral, relying on borrower creditworthiness. This playbook focuses on interest provisions, representations, and remedies for nonpayment.
Why This Matters: An unfavorable or unclear legal regime can increase cost and unpredictability in enforcement. A balanced dispute mechanism ensures enforceability and reduces jurisdictional risk.
Negotiation strategy
If you're the Lender:
Ensure the governing law is a jurisdiction favorable to your business operations. Advocate for arbitration to minimize litigation costs and time.
If you're the Borrower:
Negotiate for a neutral jurisdiction that does not disadvantage your position. Consider the implications of arbitration on your resources and readiness.
Essential elements
1
Governing Law
Jurisdiction governing the agreement.
2
Dispute Resolution
Method for resolving disputes.
3
Venue
Location for legal proceedings.
Action framework
ACCEPT
Propose edits if the jurisdiction is not business-friendly or if arbitration terms are unclear.
EDIT
Reject if the clause imposes an unfavorable jurisdiction or lacks enforceability.
ADD
Add clauses if missing to ensure legal certainty and risk management.
PRO TIP
Always verify that the chosen jurisdiction aligns with your strategic interests and that dispute resolution mechanisms are efficient.
Example clauses
FAVORABLE
Preferred Governing Law
"This Agreement shall be governed by and construed in accordance with the laws of [Selected Common Law Jurisdiction], without regard to its conflict of laws principles."
NEUTRAL
Standard Arbitration Clause
"Any dispute, controversy, or claim arising out of or relating to this Agreement shall be settled by arbitration in accordance with the [Arbitration Rules] of [Arbitration Institution]."
UNFAVORABLE
Unclear Jurisdiction Clause
"The laws applicable shall be those deemed appropriate by the arbitrators, without specific jurisdiction."
Fallbacks
High-Risk Projects
In high-risk projects, ensure the governing law provides robust protections and the dispute resolution process is swift to mitigate potential losses.
Cross-Border Transactions
For cross-border deals, select a neutral jurisdiction and arbitration institution to avoid bias and ensure fair proceedings.
Long-Term Contracts
In long-term agreements, consider jurisdictions with stable legal frameworks to avoid future uncertainties.
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