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Facility and commercial loan agreement templates
We have a range of secured and unsecured commercial loan agreement templates, facility agreements and related documents.
As an alternative to raising money by capital investment for shares in the company, a business may raise money by borrowing.
What are the different types of commercial loan?
- term loan: a loan for an upfront amount of cash with the principal amount repayable under repayment terms either in full on a specified due date or in instalments
- loan facility: 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
Business loans can either be:
- unsecured: the repayment of the principal and interest and the other obligations of the borrower are not secured over any of the property or assets of the borrower or of another person. In case of a default or insolvency of the borrower, the lender will be an unsecured creditor
- secured: the repayment of the principal and interest and the other obligations of the borrower are secured over some or all of the property or assets of the borrower or of another person. In case of an insolvency or the borrower defaults, the lender will have a power to possess and sell the secured property or assets. The lender will be a secured creditor, with priority over unsecured creditors on an insolvency
- guaranteed: a guarantee may be given by:
- another company, including a parent company or subsidiary
- an individual, including a director or shareholder
This section includes different types of loan and facility agreements together with related documents including board minutes of corporate borrowers. For forms of guarantee, including a corporate guarantee or a personal guarantee, see Guarantee.
Why use a facility agreement?
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.
frequentlyasked questions
Are commercial loans regulated?
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.
How long are commercial loans?
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.
What makes a loan agreement valid?
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
Is a commercial loan agreement legally binding?
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.
What is the difference between a secured and unsecured loan?
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.
Does a loan agreement need to be witnessed?
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.
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