What is a credit agreement and when to use it

A credit agreement is a contract where the lender provides the borrower with funds for a certain period, and the borrower undertakes to repay the funds and pay interest.

Typical examples:

• bank loans (mortgages, consumer loans),

• business loans,

• overdraft facilities,

• private credit agreements between individuals.

Legal framework

The credit agreement is governed by the Czech Civil Code (Sections 2395 to 2400) and, for consumer loans, by the Consumer Credit Act (Act No. 257/2016 Coll.).

Key features:

• funds are provided for a fee (interest),

• obligation to repay,

• written form is mandatory for consumer loans and recommended elsewhere.

Mandatory elements of a credit agreement

• Identification of the lender and borrower

• Loan amount and method of disbursement

• Interest rate and payment terms

• Repayment terms and deadlines

• Penalties for default (optional)

• Security for the loan (optional – pledge, guarantee)

• Date and signatures

Most common mistakes in practice

• Ambiguous loan amount or repayment terms

• Insufficient agreement on interest rates

• No provisions for penalties in case of default

• Missing clauses on loan acceleration

• Non-compliance with legal requirements for consumer loans

Recommendations for lenders and borrowers

Lender:

• Ensure clear terms for repayment and interest.

• Secure the loan appropriately (e.g., pledge, guarantee, promissory note).

Borrower:

• Make sure the repayment and interest terms are understandable.

• Verify compliance with consumer protection laws.

Tip from practice

For business loans, it is recommended to include a loan acceleration clause – allowing immediate demand for full repayment if the borrower is in default.
This significantly strengthens the lender’s position.

Basic credit agreement template – available for a symbolic fee

If you need a simple credit agreement template (for individuals or businesses), I can send it by e-mail for a symbolic fee.

This template is suitable for standard cases and serves as a working draft.
For more complex loans, I am happy to prepare a customized agreement for you.

If interested, please contact me via e-mail, contact form, or message. We will arrange everything quickly and easily.

FINAL THOUGHTS – WHAT NOW?

A credit agreement isn’t just a formality – it’s a legal shield, if drafted properly. And a trap, if not.

Do you want to be sure your contract will hold up even in a crisis? Get in touch and let’s schedule a meeting.