Demand Loan And Term Loan Template for the United States

A demand loan and term loan agreement creates a sophisticated financing structure that addresses both immediate liquidity needs and long-term capital requirements in a single contract. Under United States law, this dual-purpose document allows lenders to provide flexible working capital through the demand portion while offering predictable investment funding through the term portion, making it an essential tool for complex business financing arrangements.

When do you need this document?

You need this agreement when your business requires both flexible short-term financing and structured long-term funding from the same lender. This situation commonly arises in commercial real estate development projects where you need immediate access to working capital for operations while securing predictable term financing for property acquisition or construction. Manufacturing businesses often use this structure when expanding operations, requiring immediate inventory financing alongside long-term equipment loans. Growing companies frequently benefit from this arrangement when they need seasonal cash flow support through the demand portion while financing major capital investments through the term component. The agreement is also valuable when refinancing existing debt structures into a more flexible arrangement that provides both immediate liquidity and future funding certainty.

Key legal considerations

Your agreement must clearly distinguish between the demand and term portions, specifying different interest rates, repayment terms, and default provisions for each component. Security arrangements require careful structuring, as the lender may hold different collateral positions for each loan type, potentially creating complex priority issues in default scenarios. Cross-default clauses need precise drafting to ensure that defaults under one portion appropriately trigger consequences for the other portion without creating unfair acceleration rights. Interest calculation methods must be clearly defined for both portions, as demand loans typically use daily interest calculations while term loans may use different compounding periods. Personal guarantees and corporate guarantees require specific consideration regarding which portions they cover and under what circumstances they can be enforced. The agreement should address conversion mechanisms if you need to convert demand amounts to term amounts or vice versa during the loan relationship.

Legal requirements in United States

Under the Truth in Lending Act and Regulation Z, lenders must provide clear disclosure of all credit terms, including annual percentage rates, finance charges, and total payment amounts for both loan portions. The Equal Credit Opportunity Act requires non-discriminatory lending practices and specific notification procedures if credit applications are denied or modified. Fair Credit Reporting Act compliance mandates proper procedures for obtaining and using credit reports during the application process and ongoing monitoring. Bank Secrecy Act requirements apply to loan transactions, requiring lenders to maintain records and report certain transactions to prevent money laundering. Dodd-Frank provisions may apply depending on loan size and borrower characteristics, potentially requiring additional consumer protections and disclosure requirements. State usury laws must be reviewed to ensure interest rates comply with applicable maximum rate limitations for both commercial and consumer borrowers in your jurisdiction.