Manner of borrowing: Overview, definition, and example
What is the manner of borrowing?
The manner of borrowing refers to the specific process or method by which a borrower obtains funds, either from a lender, financial institution, or another source. This term often outlines the conditions and procedures involved in the borrowing arrangement, such as the loan's terms, interest rates, repayment schedules, and any collateral involved. The manner of borrowing can vary depending on the type of loan or financing arrangement, such as a line of credit, term loan, or secured loan.
In legal agreements, the manner of borrowing is described to clarify the steps involved in accessing the funds, how the funds will be drawn, and any requirements that need to be fulfilled by the borrower before receiving the money.
Why is the manner of borrowing important?
The manner of borrowing is important because it establishes clear guidelines for both the borrower and lender regarding how funds will be accessed and repaid. It helps prevent misunderstandings and ensures that both parties are on the same page regarding the terms of the loan.
For businesses, understanding the manner of borrowing is crucial to ensure they meet all the requirements for obtaining and using borrowed funds. It also helps manage cash flow and repayment schedules. For lenders, defining the manner of borrowing protects their interests by ensuring that the borrower follows the agreed-upon procedures.
Understanding the manner of borrowing through an example
Imagine a small business that takes out a term loan from a bank. The manner of borrowing may state that the business can borrow the total loan amount in one lump sum at the start of the loan term, or it may allow the business to draw funds in stages as needed, based on specific project milestones or expenditures. In this case, the loan agreement would outline the conditions under which the borrower can access the funds, such as providing receipts or proof of expenses.
In another example, a company might take out a line of credit, where the manner of borrowing would allow them to borrow any amount up to the credit limit, as needed. The loan agreement would specify the conditions for borrowing, such as repayment terms and interest rates on any drawn amount.
An example of a manner of borrowing clause
Here’s how a clause related to the manner of borrowing might appear in a loan agreement:
“The Borrower may draw down the Loan in one or more installments, provided that the total amount drawn shall not exceed the Loan amount specified in this Agreement. Each drawdown must be requested in writing by the Borrower at least [Insert Number of Days] days in advance, and the Borrower must fulfill all necessary conditions as outlined in this Agreement before each drawdown.”
Conclusion
The manner of borrowing is a critical element in any borrowing arrangement, providing clear procedures and conditions for how funds will be accessed and repaid. By outlining the steps involved, both the borrower and lender can ensure that the loan process is transparent, manageable, and legally binding. Understanding these terms helps businesses plan their finances effectively and comply with the conditions set out in loan agreements.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.