Concept, Essential Terms and Form
A term loan facility in Georgia is built on the loan contract regulated by the Civil Code of Georgia: under Article 623 the lender transfers money or another generic thing into the borrower's ownership, and the borrower undertakes to return a thing of the same kind, quality and quantity. What makes the facility "term" is that the repayment date is fixed in advance: under Article 626, where the loan is defined by a term in advance, both the principal and the interest must be paid when that term falls due. This structure distinguishes the term loan from demand arrangements, where repayment is triggered by termination of the contract rather than by a calendar date.
As to form, a loan contract is concluded orally, although the parties may agree on written form under Article 624. Written form matters in practice because the authenticity of an oral loan contract cannot be established by witness testimony alone. For any significant amount, documenting the loan terms and the transfer of funds is therefore not a formality but the borrower's core evidentiary protection in a future dispute.
The Legal Regime of Interest
Interest for the loan may be stipulated by agreement of the parties, and a loan contract secured by mortgage must indicate the monthly interest rate agreed by the parties (Article 625, part 1). The law then caps rates in two layers. First, the annual effective interest rate of the loan must not exceed 50 percent, and this requirement extends to every type of loan, including the annual amount of the monthly rate agreed for a mortgage-secured loan (parts 2 and 3¹).
Second, for a mortgage-secured loan the agreed monthly rate, including the costs connected with the use of the loan (except the costs of notarized certification and registration of the mortgage), must not exceed one twelfth of 2.5 times the arithmetic mean of the market interest rates of loans issued by commercial banks — rates published monthly on the official website of the National Bank of Georgia for the previous calendar year — and this ceiling applies from March 1 of each year (part 3). The term "effective interest rate" is defined by a legal act of the National Bank, which may also set specific rules for computing the outstanding principal and for counting commissions and penalties (parts 6 and 6¹).
Penalties and Consumer Protection Limits
When a loan is issued, the amount of any commission, any financial cost (other than costs already included in the effective interest rate), any penalty imposed for breach of any contractual term and any financial sanction must not exceed 0.27 percent of the outstanding principal for each day (Article 625, part 5). For the purposes of this cap, the law excludes the one-off penalty of no more than 20 GEL (or its equivalent in foreign currency) charged upon overdue, as well as any early repayment commission charged in cases of refinancing or early repayment.
Cumulatively, upon each overdue event, all commissions, financial costs, penalties and sanctions together must not exceed 1.5 times the current outstanding principal. Where the loan is refinanced or repaid early with the consumer's own and/or third-party funds in the manner prescribed by the Code, the lender is prohibited from imposing an early repayment commission, penalty or punitive sanction that exceeds 2 percent of the outstanding principal (part 8).
Disbursement Rules and Currency Restriction
Where the loan or credit is secured by immovable property, by a transport vehicle defined by the Georgian Law on Road Traffic, by auxiliary technical means of agricultural machinery, or by water, air and rail transport, the lender is obliged to hand over the funds to the borrower through cashless settlement. This requirement is stated directly by the corresponding norm of the Civil Code, and its breach becomes a key argument for the borrower when the existence or performance of the secured facility is disputed.
In terms of currency, unless otherwise established by Georgian legislation, a loan of up to 200,000 GEL must be issued in GEL only, except where, as a result of the issuance, the borrower's aggregate obligations to the same lender exceed 200,000 GEL (Article 625, part 7). A loan linked to or indexed to foreign currency in any form is not treated as a loan issued in GEL, which matters when assessing whether the currency restriction was observed.
Termination of the Contract and Repayment
If the repayment date is not determined by the contract, the debt must be returned upon termination of the contract by the creditor or the debtor, and the period for termination is three months (Article 626, parts 1 and 2). In practice this means that an undated facility is wound up by notice: one party announces termination, and repayment falls due upon it within the statutory three-month window.
If no interest has been promised, the debtor may return the debt before the due date; early repayment of an interest-bearing loan is allowed only by preliminary agreement of the parties or with the lender's consent (part 2). Interest must be paid after the expiry of each year, and where the loan is defined by a term in advance, both the debt and the interest are payable when the term falls due (part 3).
Frequently Asked Questions
What form is required for a loan contract?
A loan contract is concluded orally, and written form may be used by agreement of the parties (Article 624). Since the authenticity of an oral contract cannot be proven by witnesses alone, written documentation of the terms and of the transfer is strongly advisable.
How high can the interest rate be?
The annual effective interest rate must not exceed 50 percent, and this cap covers all types of loans (Article 625, parts 2 and 3¹). Mortgage-secured loans are additionally subject to a monthly-rate ceiling built on the market rates published by the National Bank of Georgia for the previous calendar year.
Can a term loan be repaid early?
An interest-free loan may be returned before the due date at any time. For an interest-bearing loan, early return is possible only by prior agreement or with the lender's consent (Article 626, part 2), and any early repayment commission on refinancing or early coverage cannot exceed 2 percent of the outstanding principal.
How must a loan of up to 200,000 GEL be issued?
Such a loan must be issued in GEL only, unless the borrower's total obligations to the same lender exceed 200,000 GEL as a result of the issuance. Loans secured by immovable property or by vehicles must be disbursed through cashless settlement.
How We Help on Legal.ge
The Legal.ge team assists both lenders and borrowers with term loan facilities: drafting and auditing loan contracts, assessing whether interest, penalties and commissions stay within statutory limits, verifying disbursement and currency rules, and handling disputes over early repayment and defaults. We review your documentation, identify risks and build a negotiation or litigation strategy protectively of your interests. Contact us for a consultation and get a grounded assessment of every term of your facility.