Financial Agreement

What Is the Process for Making a Financial Contract?

A financial contract is a document that describes the proper financing procedures for a specific business project or strategy. Usually, it forms an agreement between the lender (the financer) and the borrower (the business). Because of this, it may be required to enter into a finance or financing agreement to ensure that the business initiative is adequately funded along the way without any problems.

Finance contracts can be used to fund a wide range of commercial activities. A financing agreement is necessary for any project that requires outside funds. Most finance contract will let the borrower use project proceeds to pay off debt.

For instance, a lender might sign a bond with a business building a movie theatre. The corporation can then utilise the revenue from ticket sales to pay back the borrowed funds.

The Advantages of Financial Contracts

  • Demonstrate what you and the other side have agreed upon.
  • Making the agreement clear from the beginning aids in preventing future misunderstandings or problems.
  • It gives you security and peace of mind by putting the conditions of the agreement in writing so they cannot be changed.
  • Reduce the possibility of a disagreement on the costs, obligations, and delivery schedules for the services covered by the contract.
  • Explains how to settle disputes 
  • And outlines the procedures for terminating the agreement before the job is finished.

Checklist Finance Contract Requirements

  • Depending on the type of agreement and its complexity, a contract will contain various provisions.
  • For a contract to be enforceable, there must be both an agreement and a consideration.
  • The agreement and consideration contain several clauses that enhance the legitimacy of a contract. These comprise the offer, fulfilment, commitments, payment terms, liabilities, and contract default or infringement provisions.
  • An agreement must include consideration to be legally enforceable. That implies that each party must receive something of value or respect. 

What happens if either party violates the terms of the contract?

A written agreement should also contain some “boilerplate” clauses, even though they are not legally necessary. Including:

  • A clause stating that everything contained in the contract is exactly what was agreed upon.
  • A clause known as the “Force Majeure Clause” declares that the contract is void if an event is beyond either party’s control, such as a fire, an earthquake, or some other unusual occurrence for which no one is to blame.
  • The arbitration or mediation clause specifies whether disputes will be resolved through independent third-party arbitration or mediation.

What Procedures Are Followed When Writing a Finance Contract?

The borrower and creditor enter into a contract known as a financing agreement. As a result, it is subject to special contract rules about existence, development, and compliance in case of a violation.

Even though each financing agreement may differ based on the demands of the individual, there should be a specific financing agreement that contains:

  • Names and phone numbers of all parties involved (may include business entities in addition to individuals)
  • A description of the business or project that seeks finance in general
  • The sum to be financed
  • Conditions about the fund distribution (whether the loan will be paid in a lump sum or via monthly distributions)
  • Repayment conditions for the funds
  • How will the funds be utilised
  • The parties must resolve disagreements in case of a breach, such as by including a separate clause mandating arbitration rather than litigation.

Even for initiatives that appear to be simple, financing arrangements can be exceedingly tricky. They require both foresight and a sound business plan to avoid problems. A lawyer is usually needed to assist with contract drafting, especially when a small company loan is considered.

A project financing agreements are not binding if they were made under duress, through fraud, or if they call for funding for illegal projects. When a financing agreement is violated, the contract holder frequently sues for damages. An award of damages to compensate for the victim’s losses is a common form of redress.

Provisions in a Finance Contract

Loan amount:

The lender guarantees to grant the borrower a specific sum, and the borrower guarantees to pay back the principal sum to the lender.


According to this provision, the agreed-upon date will see the complete repayment of the stated principal amount.


If a borrower fails to comply with this agreement, the lender may declare that payment is due and the applicable principal balance.

Governing law:

The applicable laws concerning this agreement shall apply to and regulate this agreement.


In any default on the borrower’s part, the borrower shall be responsible for all fees, losses, and expenses incurred, including, without limitation, the lender’s total legal costs. These fees shall be added to the outstanding principal and immediately due and payable to the lender at the lender’s request.

Binding effect:

The agreement shall legally bind the borrower and lender and their respective heirs, executors, managers, successors, and authorised assigns. The creditor waives payment delivery, a notice of non-payment, and a notice of appeal.


The Agreement may only be modified or amended in writing and signed by the parties.


The terms and statements in this agreement are intended to be read and understood separately from one another. The parties intend that if any term, covenant, condition, or provision of this agreement is determined by a court of competent jurisdiction to be invalid, void, or unenforceable, such requirement shall be reduced by the court only to the extent that the court deems it necessary to make the provision reasonable and enforceable, and that the remainder of this agreement’s provisions shall not be impacted in any way.

General provisions:

When reading the agreement’s contents, headings are given just for the parties’ convenience and are not to be interpreted in the singular. The singular and plural both follow the same rules.

Entire agreement:

This agreement is the entire understanding between the parties; no other terms or conditions are applicable, whether expressed orally or in writing.

The procedures for preparing the Vakilsearch Financial Contract

  • Step 1: Their website links you with reputable attorneys.
  • Step 2: You will receive the first draught in four days.
  • Step 3: Two iterations at no additional expense.

Documents Necessary:

  • Form of Application: Fill out the loan application and attach one passport-size photo.
  • Passport copy, PAN card copy, voter identification card, driver’s licence, and MAPIN card are acceptable forms of identification for applicants.
  • Telephone bills, lease agreements, ration cards, electricity bills, passports, trade licence, and sales tax certificates are all acceptable forms of identification.
  • Age verification options include a photocopy of a passport, a PAN card, and a voter identification card.
  • Financial Records: Copies of IT returns for the last two years, the most recent six-month bank statements, P&L, and a two-year audited balance sheet by a chartered accountant.


By utilising their digital capabilities and the knowledge of their team of legal professionals, Vakilsearch provides legal advice for over 1000 corporations and LLPs each month with a group of over 300 experienced business advisers and legal professionals.

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