Formal Request to Extend Loan

What is a Formal Request to Extend Loan?

A Formal Request to Extend Loan is a letter sent by a borrower to a lender, asking them to change the date on which the loan is to be fully repaid. An example of such an instance is where a borrower is experiencing financial hardship and the loan repayment date has either passed or they are unlikely to meet with the repayment obligation on that date. The borrower can send a Formal Request to Extend Loan to the lender outlining the difficulties it is facing and ask for a change in the loan repayment date.

Is it mandatory to have a Formal Request to Extend Loan?

No, it is not mandatory to have a Formal Request to Extend a Loan. However, it is advisable for the borrower to use one where they would like to change the date of the loan repayment.

This is because a written request ensures there is clarity on the terms of extension the borrower is requesting and on the lender's part, they can hold the borrower to these proposed terms. The written request also helps mitigate the risk of future dispute between the parties (for example, avoiding a situation where one party claims they said something else than what the other remembers).

What are the prerequisites of a Formal Request to Extend Loan?

Before a Formal Request to Extend Loan should be used, there should already been a loan agreement in place under which the lender and borrower have laid out the terms and conditions of the loan.

Who can use a Formal Request to Extend Loan?

A Formal Request to Extend Loan can be used by any borrower under a loan agreement. This includes private and commercial borrowers alike. If the borrower is a commercial entity, they can have any business structure such as a sole trader, a general partnership, a company or an LLP.

What can be the duration of a Formal Request to Extend Loan?

For a borrower to make a Formal Request to Extend Loan, the date for repayment of the loan should either:

• Be approaching but the borrower will not be able to meet up with the commitment to pay; or
• Have already passed and the borrower has failed to make the repayment.

The borrower can ask for as much time as they feel they will need to be in a position to repay the loan. However, it should also be understood that it is up to the lender to agree to the borrower's requested time or propose their own timeline for repayment. Additionally, it is possible for the loan agreement to state the maximum extension that a borrower can request. In such a case, the borrower will have to keep to this time, and the lender will still have the discretion to agree or not.

What has to be done once a Formal Request to Extend Loan is ready?

Once the Formal Request to Extend Loan has been completed, it should be signed by the borrower. If the borrower is a company or LLP, it should be signed by their authorised representative (e.g. Finance Manager, CEO, Direct Partner).

After signing, the Formal Request to Extend Loan should be sent to the lender through post or email. If the loan agreement states a specific method for sending communication, then the request should be sent using that method.

Which documents should be attached to a Formal Request to Extend Loan?

The borrower can attach the following to the Formal Request to Extend Loan:

• Excerpts from the loan agreement that allow for a request to extend the loan;
• Evidences of the borrower's reason for requesting the loan extension (e.g. recent credit report, financial statements etc).

Is it necessary to have witnesses for a Formal Request to Extend Loan?

No, it is not necessary to have a witness for a Formal Request to Extend Loan. This is because it is not an agreement between the parties, but a simple request letter sent to the lender.

What happens if the lender rejects the Formal Request to Extend Loan?

If the lender rejects the Formal Request to Extend Loan, the borrower has the following options:

• Try further negotiation with the lender on new terms for loan extension that may be acceptable to the lender;
• Offer collateral to the lender to make the loan extension mere attractive;
• Consider refinancing with another lender;
• Prepare for possible default of the loan; and
• Seek professional and/or legal advice.

 

Is the lender obliged to accept a Formal Request to Extend Loan?

No, the lender is not obliged to accept a borrower's request to extend the loan. The lender has the discretion to accept or reject a Formal Request to Extend Loan, and if they do, it is up to them what the cost of the extension will be (i.e. the charges and interests that may apply to the extension).

What must a Formal Request to Extend Loan contain?

A Formal Request to Extend Loan should contain:

• The details of the borrower;
• The requested date of loan extension;
• The date of repayment under the original loan agreement; and
• The reason for requesting the loan extension.

Which Laws are applicable to a Formal Request to Extend Loan?

Consumer Credit Act 1974

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