Private Lending Term Sheet Template for the Philippines

A Private Lending Term Sheet is a preliminary document that outlines the key commercial and legal terms of a proposed loan before you enter into a formal lending agreement. This document serves as a foundation for negotiations between lenders and borrowers, ensuring all parties understand the fundamental terms before proceeding with detailed loan documentation.

When do you need this document?

You need a Private Lending Term Sheet when entering any private lending arrangement in the Philippines. This includes situations where banks or formal financial institutions are not involved, such as lending between family members, friends, or business associates. The document is essential when you're negotiating business loans between companies, real estate financing arrangements, or bridge loans for urgent funding needs. It's particularly valuable when the loan involves substantial amounts or complex terms that require careful consideration before formal commitment. You should also use this document when multiple parties are involved, such as co-borrowers or guarantors, to ensure everyone understands their obligations from the outset.

Key legal considerations

Several critical legal elements must be addressed in your Private Lending Term Sheet to ensure enforceability and compliance. The interest rate provisions must comply with current Central Bank regulations, as excessive rates may render the agreement void. Security and collateral arrangements require careful definition to protect the lender's interests while respecting borrower rights under the Civil Code. Default provisions should clearly specify events of default and remedies available to the lender, including acceleration of the loan and enforcement of security. You must also consider the impact of the Truth in Lending Act, which requires full disclosure of the true cost of borrowing, including all fees and charges. Guarantor provisions, if applicable, should clearly outline the extent of liability and circumstances under which guarantees become enforceable.

Legal requirements in Philippines

Under Philippines law, your Private Lending Term Sheet must comply with several regulatory frameworks to be legally enforceable. The Truth in Lending Act (Republic Act No. 3765) mandates clear disclosure of interest rates, fees, and the total cost of borrowing using standardized calculation methods. The Civil Code governs fundamental contract formation requirements, including mutual consent, valid consideration, and lawful object. If your lending arrangement involves a financing company or lending institution, compliance with the Lending Company Regulation Act (Republic Act No. 9474) may be required, including licensing and operational requirements. Interest rate provisions must align with Central Bank Circular No. 905, which governs interest rate regulations, though parties generally have freedom to agree on rates. The document should also consider provisions of the Financing Company Act for institutional lenders and ensure that any security arrangements comply with applicable registration and perfection requirements under Philippines law.