Loan Agreement Template

In plain language: Identifies the lender and borrower as legal entities, states the exact principal amount, and specifies how and when the funds will be transferred.

Common mistake: Using a trade name instead of the legal entity name for either party. If the borrower defaults, enforcement action must name the correct legal entity — a mismatch delays or defeats collection.

In plain language: States the interest rate, whether it is fixed or variable, how interest accrues (simple vs. compound), and the day-count convention used.

Common mistake: Omitting the day-count convention. Whether interest is calculated on a 360- or 365-day year produces materially different amounts on large loans and creates disputes at payoff.

In plain language: Sets out the payment frequency, amount of each installment, due dates, and whether payments are interest-only, fully amortizing, or structured with a balloon payment.

Common mistake: Specifying installment amounts that do not fully amortize the loan by the maturity date without explicitly calling the residual a balloon payment. The borrower may be surprised by a large final obligation they did not anticipate.

In plain language: Describes the assets pledged as security for the loan and the lender's rights to register, perfect, and enforce the security interest.

Common mistake: Describing collateral vaguely as 'all business assets.' Collateral descriptions must be specific enough to be identified and registered under applicable personal property security legislation — otherwise the security interest may be unperfected and lose priority to other creditors.

In plain language: The borrower's factual statements about its legal status, authority to borrow, absence of conflicting obligations, and financial condition — all of which the lender relies on in extending credit.

Common mistake: Omitting representations entirely on informal business loans. If the borrower misrepresents its financial condition and defaults, the lender has no contractual basis to pursue fraud remedies without a representations clause.

In plain language: Ongoing obligations the borrower must maintain (affirmative) and actions it is prohibited from taking (negative) during the loan term to protect the lender's position.

Common mistake: Using covenants copied from a large commercial loan for a small informal loan. Burdensome covenants that the borrower cannot realistically comply with trigger technical defaults that undermine the commercial relationship and the enforceability of the agreement.

In plain language: Lists specific triggers that constitute default — missed payment, breach of covenant, insolvency — and the lender's right to declare the full balance immediately due and pursue remedies.

Common mistake: No cure period before acceleration. Triggering immediate acceleration on a first missed payment — without a notice-and-cure window — is often held to be unenforceable or unconscionable by courts, and can destroy an otherwise recoverable lending relationship.

In plain language: States whether the borrower may repay the loan early, whether a prepayment penalty applies, and how prepayments are applied to principal and interest.

Common mistake: Silence on prepayment. Without a clause, the lender may argue — particularly in some jurisdictions — that a fixed-term loan cannot be prepaid without consent, trapping the borrower in interest payments they could otherwise eliminate.

In plain language: Specifies which jurisdiction's law governs the agreement, where disputes must be litigated or arbitrated, and any waiver of jury trial.

Common mistake: Choosing a governing law with no connection to where the lender or borrower is located or the loan was made. Courts in the borrower's home state may apply local usury laws and consumer protection statutes regardless of what the contract says.

In plain language: Confirms the written agreement is the complete and final record of the loan terms, that changes require a signed writing, and that failure to enforce a term on one occasion does not waive it permanently.

Common mistake: Allowing oral amendments. If the lender verbally agrees to extend a payment deadline and the borrower later defaults, a court may enforce the oral extension against the lender unless a written-amendment-only clause is present.

A loan agreement is a legally binding contract between a lender and a borrower that records the terms under which money is lent and repaid. It specifies the principal amount, interest rate, repayment schedule, collateral (if any), events of default, and remedies available to the lender if the borrower fails to repay. Both business and personal loans can be documented with a loan agreement.

A promissory note is a short, one-sided promise by the borrower to repay a sum under stated terms — typically one to two pages with minimal covenants. A loan agreement is a bilateral contract signed by both parties that includes detailed representations, covenants, collateral provisions, and default remedies. Promissory notes suit simple short-term loans between parties with a strong existing relationship; loan agreements are appropriate for any loan where the lender needs ongoing protections during the loan term.

In most jurisdictions, notarization is not required for a loan agreement to be enforceable. However, notarization — or witnessed signatures — is strongly recommended for loans above $50,000, for any loan secured by real property, and for loans that will be registered as a lien. Some US states require notarization for mortgage-backed loans, and certain international jurisdictions require notarization for all secured lending instruments.

The maximum permissible interest rate — the usury ceiling — varies by jurisdiction and loan type. In the US, state usury laws govern most private loans; commercial loans between businesses often have higher or no ceilings, while consumer loans face stricter limits. In Canada, the Criminal Code prohibits effective interest rates above 60% per annum on most loans. Consider consulting a lawyer to confirm the applicable ceiling before setting a rate.

Yes — a properly executed written loan agreement between family members is generally enforceable in the same way as any other contract, provided it includes a clear offer, acceptance, and consideration (the loan itself serves as consideration). Family loans documented in writing are also treated as genuine debt for tax purposes. Undocumented family loans are commonly recharacterized as gifts by tax authorities and courts.

When a defined event of default occurs and any applicable cure period expires without remedy, the lender may typically: (a) accelerate the full outstanding balance, making it immediately due; (b) enforce security interests and take possession of collateral; (c) pursue the borrower or any guarantor for the outstanding balance through litigation or arbitration; and (d) charge default interest at the rate specified in the agreement. The specific remedies available depend on the terms of the agreement and applicable law.

For straightforward unsecured business loans or simple personal loans between known parties, a well-drafted template is typically sufficient. Engage a lawyer when the loan is large (above $100,000), when real property or a complex business asset is pledged as collateral, when the borrower is a regulated entity, when the loan is cross-border, or when the lender intends to sell or assign the loan to a third party. A 1–2 hour template review typically costs $300–$700 and is worthwhile for any loan above $50,000.

An intercompany loan is a loan between related entities — such as a parent company lending to a subsidiary. Tax authorities in the US, Canada, the UK, and the EU scrutinize intercompany loans closely and may recharacterize them as equity contributions (eliminating interest deductibility) or apply transfer-pricing adjustments if the interest rate is not at arm's length. A formal written loan agreement at a market interest rate is essential for any intercompany arrangement to withstand audit scrutiny.

Yes, with the written consent of both parties. Most loan agreements include an entire-agreement clause requiring that any amendment be signed in writing by both the lender and borrower to be effective. Verbal agreements to extend a maturity date or waive a missed payment are generally not enforceable where a written-amendment-only clause is present, though courts in some jurisdictions may recognize promissory estoppel where the borrower reasonably relied on a verbal modification.