Commercial loan agreement templates

A commercial loan agreement sets out the terms and conditions under which a lender provides money to a borrower. The specific provisions will depend on the nature of the loan, but a typical agreement will cover:

• Lender and borrower: The legal names and details of the parties entering into the agreement.
• Loan amount: The principal amount being borrowed and when the funds will be advanced or made available.
• Interest and fees: The agreed interest rate, how interest is calculated and when it is payable, together with any applicable fees.
• Repayment terms: The repayment date or schedule, including any provisions for early repayment.
• Security and guarantees: Details of any security or guarantees supporting the borrower’s repayment obligations.
• Events of default: The circumstances in which the borrower will be considered in default and the rights available to the lender, including any right to demand early repayment.
• Other obligations: Any additional undertakings, conditions or restrictions agreed between the lender and borrower.

Clearly documenting these terms helps establish the responsibilities of both parties and reduces the risk of disputes during the loan period.

The documents required will depend on the type of loan and the arrangements agreed between the lender and borrower.

A company will generally need a loan agreement or facility agreement setting out the borrowing terms. Board minutes may also be used to record the directors’ approval of the borrowing.

PaperRock provides board minutes for loan agreements and board minutes for facility agreements, suitable for corporate borrowers incorporated in England and Wales.

Where the loan is secured, additional security documents and registrations may be required. If repayment is guaranteed by another company or individual, a separate guarantee agreement may also be needed.

Generally, commercial loans between businesses are not regulated in the UK by the Financial Conduct Authority (FCA). UK consumer credit laws are designed to protect individuals and small partnerships, not companies borrowing for business purposes.

However, if a loan is made to a sole trader or partnership of fewer than four people, and not exceeding £25,000, some regulation may apply. In such cases, the loan could fall under the Consumer Credit Act 1974 unless explicitly exempted.

Most standard business loans, especially those between companies, fall outside this regulatory regime. It’s still important to ensure the agreement is properly drafted and legally binding.  If security is involved such as a mortgage or charge, the security will also need to be registered where necessary to ensure its effectiveness.

The length of a commercial loan can vary depending on the needs of the lender and the borrower. A loan agreement might be short-term (a few months), medium-term (one to five years), or long-term (over five years).

There are two main types of arrangement:

• Term loan: a lump sum loan repayable on a fixed date or in instalments
• Loan facility: a flexible arrangement allowing the borrower to draw down funds over time, usually up to a fixed amount and within a set availability period

The repayment period is always agreed in advance and set out clearly in the loan or facility agreement.

A loan agreement is valid if it satisfies the key elements of a legally binding contract:

• an offer and acceptance of loan terms
• intention to create legal relations
• consideration (i.e. the loaned money)
• clear and agreed terms, including amount, repayment, and interest

Yes. A commercial loan agreement is legally binding once it is signed by both parties. It sets out the terms on which money is loaned, including repayment, interest, and any security or guarantees.

If either party fails to meet their obligations, the other may take legal action. For example, a lender may demand repayment or enforce security over assets if the borrower defaults. A well-drafted agreement helps avoid disputes and ensures both sides are protected.

A secured loan is backed by specific assets, such as property or equipment. If the borrower fails to repay, the lender can take possession of those assets. This gives the lender more security and priority over other creditors in an insolvency.

An unsecured loan is not backed by assets. The lender relies on the borrower’s promise to repay. If the borrower defaults, the lender becomes an unsecured creditor, ranking behind secured creditors in an insolvency.

Secured loans usually come with lower interest rates, while unsecured loans may be quicker to arrange but riskier for lenders.

A simple loan agreement signed by two companies or individuals usually does not need to be witnessed. However, if the agreement is executed as a deed (which is common for secured loans or where no consideration is given), witnessing may be required.

For a deed to be validly executed:

• an individual must sign in the presence of a witness
  
• a company may execute by two directors or a director and witness
  

Always check the execution clauses and follow the proper formalities, especially for security documents or guarantees.

A facility agreement is an arrangement under which a lender agrees to provide one or more loans to a borrower for a period of time and up to specified maximum loan amount.  A facility agreement may be unsecured or secured.

Subject to the borrower continuing to comply with the facility agreement, including the repayment obligations and payment of interest at the agreed interest rate, the lender is committed to provide future loan advances to the borrower under the facility. This enables the borrower to borrow money (and start to pay interest on the amount advanced) on an as and when needed basis.  In exchange for the commitment to lend money when requested, the lender and the borrower may agree that the lender will be paid a commitment fee equal to a percentage of the undrawn facility.