Facility and commercial loan agreement templates

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.