The Loan Promissory Note (Schuldschein) is a traditional German law financing instrument that serves as both a loan agreement and a negotiable debt instrument. It is commonly used when a borrower needs medium to long-term financing and prefers a more streamlined documentation process compared to traditional loan agreements. The document is governed by German law, particularly the German Civil Code (BGB), and includes essential elements such as loan amount, interest terms, repayment provisions, and an abstract promise to pay. It's particularly attractive for corporate financing due to its transferability and relatively straightforward documentation requirements, while still providing adequate protection for all parties involved. The instrument can be either secured or unsecured and is often used in both bilateral and syndicated lending arrangements.
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1. Parties: Identification of the lender and borrower with full legal names, addresses, and registration details if applicable
2. Background: Brief context of the loan arrangement and confirmation that the borrower wishes to document the debt through a promissory note
3. Definitions: Key terms used in the document, keeping it minimal as per German practice
4. Loan Amount and Currency: Clear statement of the principal amount being lent and the currency
5. Interest Rate: Specification of the applicable interest rate, calculation method, and payment dates
6. Term and Repayment: Duration of the loan and terms of repayment, including payment schedule
7. Payment Mechanics: Details of how payments should be made, including bank account information
8. Abstract Promise to Pay: The formal promissory note declaration as required under German law
9. Events of Default: Circumstances under which the loan becomes immediately due and payable
10. Representations: Essential representations by the borrower regarding their capacity and authority
11. Governing Law and Jurisdiction: Confirmation of German law governance and jurisdiction of German courts
1. Security: Required if the loan is secured by any assets or guarantees
2. Transfer Provisions: Include if the note is intended to be transferable
3. Tax Gross-Up: Include if tax deduction provisions are relevant, particularly for cross-border loans
4. Financial Covenants: Include for corporate borrowers where financial metrics need to be maintained
5. Information Undertakings: Include if ongoing financial or other reporting is required from the borrower
6. Consumer Protection Clauses: Required if the borrower is a consumer, including mandatory information and withdrawal rights
7. Increased Costs: Include for longer-term loans or where regulatory changes might affect the lender's costs
1. Repayment Schedule: Detailed amortization table showing principal and interest payments
2. Form of Transfer Certificate: If transferable, the standard form for documenting transfers
3. Calculation of Interest Rate: If the interest rate is variable or complex, detailed calculation methodology
4. Conditions Precedent: List of documents and conditions required before loan drawdown
5. Security Details: If secured, detailed description of security assets and arrangements
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