Loan Agreement Template
Hand-drafted loan agreement template for 2026 — the commercial loan covering principal and drawdown, interest rate (fixed or variable), repayment schedule (bullet, amortising, interest-only or balloon), security and personal guarantees, conditions precedent, financial and operating covenants, events of default and acceleration, and prepayment terms. Variants for business loans, director loans, shareholder loans and secured asset-backed loans in both UK and US frameworks. Download today as PDF, Word or Google Docs.
Download Template See what’s inside →Quick answer. A loan agreement is a contract between a lender and a borrower under which the lender provides a sum of money (the principal) on terms that the borrower will repay it, usually with interest, by a defined date or schedule. Unlike a promissory note — the borrower's one-sided IOU — a loan agreement is a two-sided contract that can include detailed protections: covenants regulating the borrower's conduct, security over assets, personal guarantees, financial reporting requirements, events of default and acceleration mechanics, and prepayment terms. The template below covers business loans, director loans, shareholder loans and secured asset-backed loans, with both UK (English law, Companies House charge registration) and US (state law, UCC-1 filings) practice. Download as PDF, Word or Google Docs.
What is a Loan Agreement?
A loan agreement is a contract between a lender and a borrower under which the lender provides a sum of money (the principal) on terms that the borrower will repay it, usually with interest, by a defined date or schedule. It is the dominant legal framework for any commercial debt that is more substantive than an informal IOU: business loans from banks or non-bank lenders, intercompany loans between affiliated entities, director and shareholder loans, secured asset-backed financings, and family office or HNW investor loans into early-stage companies.
The drafting differs sharply from a simple promissory note in scope and protection. A loan agreement gives the lender enforceable covenants over the borrower's conduct during the loan term, security over assets if applicable, personal guarantees from directors or owners, defined events of default with acceleration mechanics, and a tested prepayment regime. The framework below applies in both UK practice (governed by English contract law, the Companies Act 2006 for charge registration, and the Late Payment of Commercial Debts (Interest) Act 1998 for default rates) and US practice (state contract law, UCC Article 9 for secured transactions, and state usury laws for maximum interest).
Key Components of a Loan Agreement
- Parties — lender and borrower, with affiliate definitions if relevant
- Principal & currency — loan amount in figures and words, currency, drawdown mechanics
- Interest rate — fixed or variable, day-count convention, payment frequency
- Default rate — uplift on overdue amounts (commonly 2-4% above standard rate)
- Repayment schedule — bullet, amortising, interest-only or balloon
- Prepayment — permitted, with or without break costs / make-whole
- Security — fixed charge, floating charge, debenture, mortgage, share pledge
- Personal guarantees — capped or unlimited, limited recourse where applicable
- Conditions precedent — CPs to drawdown (KYC, board resolution, security registration)
- Covenants — financial (ratios) and operating (information, restrictions)
- Events of default — non-payment, covenant breach, insolvency, MAC, cross-default
- Acceleration — lender's right to call all amounts immediately due
- Boilerplate & signatures — governing law, jurisdiction, electronic execution
Loan Agreement vs Promissory Note vs Convertible Note: When to Use Each
| Factor | Loan Agreement | Promissory Note | Convertible Note |
|---|---|---|---|
| Purpose | Formal commercial loan with covenants and security | Simple borrower's promise to pay (one-sided IOU) | Loan that converts to equity at a future trigger event |
| Length | 15-50+ pages depending on complexity | 1-3 pages | 5-15 pages |
| Document Structure | Two-sided contract with mutual obligations | One-sided promise from borrower only | Two-sided contract with conversion mechanics |
| Repayment | Cash repayment per defined schedule | Cash repayment, often single bullet payment | Either repayment OR conversion to equity |
| Security & Guarantees | Common - secured loans typical for SME debt | Rare - usually unsecured | Rare - typically unsecured |
| Covenants | Yes - financial and operating covenants | No - simple debt instrument | Limited - mostly conversion mechanics |
| Best For | Bank loans, intercompany loans, secured debt over GBP 50k | Small informal loans, family loans, simple debts | Pre-priced startup funding rounds (pre-seed, bridge) |
In practice, these three instruments serve different points on the same spectrum. A simple GBP 10,000 loan from a parent to a child for a deposit fits naturally on a promissory note. A GBP 250,000 secured business loan with quarterly financial reporting belongs in a full loan agreement. A GBP 500,000 pre-seed investment from an angel that will convert into the next priced round is structured as a convertible note. Choosing the wrong instrument causes friction: a promissory note for a complex secured deal leaves the lender exposed; a full loan agreement for a small family loan is overkill and damages the relationship.
What a Loan Agreement Adds Over a Promissory Note
- Two-sided enforceable contract with mutual obligations
- Properly drafted security and personal guarantees
- Conditions precedent to drawdown (board resolutions, KYC, security registration)
- Financial and operating covenants for ongoing borrower discipline
- Defined events of default with cure periods and acceleration
- Information undertakings (financial reporting cadence)
- Material adverse change (MAC) clause
- Cross-default protection
- Prepayment regime (whether permitted, break costs, make-whole)
Which Type of Loan Do You Need?
The right loan structure depends on three questions: how big and how complex is the loan, will it convert to equity, and is there security available. The decision tree below walks through it.
The most common decision-flow mistake is using a promissory note for a complex secured deal — the lender ends up with weak protection and an unenforceable charge over assets. The opposite mistake is using a 30-page loan agreement for a GBP 5,000 family loan, which damages the relationship and over-engineers the documentation. Always classify the loan first (size, complexity, security), then pick the structure.
Legal Framework: UK and US
United Kingdom
UK loan agreements are governed primarily by English contract law, the Companies Act 2006 (for charge registration under section 859A), the Late Payment of Commercial Debts (Interest) Act 1998 (for default interest on commercial debts), and where consumer borrowers are involved, the Consumer Credit Act 1974 (most business-to-business loans are exempt). Charges over assets of UK-incorporated borrowers must be registered at Companies House within 21 days of creation; a charge that is not registered within the deadline is void against a liquidator and the lender's secured status falls away on insolvency.
For UK lenders making loans in the course of a business, the regulatory regime under the Financial Services and Markets Act 2000 (FSMA) and the Financial Conduct Authority (FCA) handbook may apply. Most ordinary commercial-to-commercial loans fall outside the regulated regime, but consumer loans, regulated mortgage contracts and credit broking activities require FCA authorisation. UK loans to directors are regulated by the Companies Act 2006 (sections 197-214), with shareholder approval requirements above defined thresholds. Loans by a close company to a participator can attract a section 455 corporation tax charge if not repaid within 9 months and 1 day of the company's accounting year end.
United States
US loan agreements are governed by state contract law, with key federal and state overlays. UCC Article 9 governs secured transactions in personal property and requires a UCC-1 financing statement filed with the relevant Secretary of State to perfect the lender's security interest. UCC Article 3 governs negotiable instruments including promissory notes. State usury laws set maximum interest rates and vary by state, exemption (commercial vs consumer), and amount; commercial loans are typically exempt or subject to higher caps but rates above the cap can be void or only enforceable to the cap. The federal Truth in Lending Act / Regulation Z applies to consumer loans. Loans by a corporation to its shareholders or directors require careful US tax structuring under IRC section 7872 (below-market loans and imputed interest).
For commercial lending in the US, both bank and non-bank lenders comply with state lending licence requirements (which vary widely), federal AML/KYC rules under the Bank Secrecy Act, and OFAC sanctions screening. Cross-border loans (a UK lender to a US borrower or vice versa) require careful consideration of withholding tax (under the relevant double tax treaty), enforcement mechanics, and the choice of governing law and jurisdiction. The LSTA standard documentation is the US bank-loan market reference; LMA documentation is the UK / European reference.
Key Compliance Anchors
- UK: Companies Act 2006 section 859A — register charges at Companies House within 21 days
- UK: Late Payment of Commercial Debts (Interest) Act 1998 for default interest on B2B loans
- UK: Consumer Credit Act 1974 if any consumer borrower is involved (most B2B loans exempt)
- UK: FCA authorisation for regulated lending activities; AML/KYC checks on borrower
- UK: Companies Act sections 197-214 for director loans; section 455 tax charge for close-company loans to participators
- US: UCC Article 9 for secured transactions — file UCC-1 financing statements
- US: State usury law caps on interest rates (commercial loans usually exempt but check state)
- US: IRC section 7872 for below-market loans (related-party imputed interest)
- US: Truth in Lending Act / Regulation Z for consumer loans
- Both: AML / KYC screening of borrower; OFAC sanctions check; LSTA (US) / LMA (UK / EU) standard documentation as drafting reference
Types of Loan Agreement
| Type | Use Case | Typical Terms | Best For |
|---|---|---|---|
| Business Term Loan | Working capital, growth investment, acquisitions | 3-7 year term, fixed or variable rate, amortising or bullet | Established SMEs with stable cash flow; bank or non-bank lender |
| Revolving Credit Facility | Working capital, seasonal swings, opportunistic capital | 1-3 year availability, draw and repay flexibility, commitment fee on undrawn | Cash-flow-volatile businesses; growth-stage SMEs |
| Director Loan | Director funding the company short-term | Often interest-free or low-rate, on-demand or short term | Founder-funded bridge between rounds; short-term liquidity gap |
| Shareholder Loan | Existing shareholder providing additional capital as debt | Subordinated to bank debt, often convertible at next round | Top-up funding from existing shareholders without dilution |
| Intercompany Loan | Loan between affiliated group entities | Arm's length pricing required for transfer pricing rules; on-demand or term | Cash-pooling, intra-group funding, treasury management |
| Secured Asset-Backed Loan | Loan secured against specific assets (property, equipment, IP) | Lower interest rate due to security; LTV limits typically 50-80% | Asset-rich borrowers; property finance; equipment finance |
| Family / Friends Loan | Loan from family member or close friend to founder or business | Often interest-free or low rate; flexible repayment terms | Early-stage founders, deposits, bridge funding |
Choosing Between Types
- Term loan vs revolving facility: Term loans for one-off funding needs (acquisition, single project); revolving facilities for ongoing working capital management
- Director loan vs shareholder loan: Director loans hit personal tax (UK section 455 charge) if not repaid in 9 months and 1 day after year-end; shareholder loans give more flexibility but require careful related-party documentation
- Secured vs unsecured: Secured loans typically carry lower rates but require asset registration and proper enforcement mechanics; unsecured loans are faster but typically need personal guarantees
- Interest-only vs amortising: Interest-only loans preserve cash flow but defer principal repayment to maturity; amortising loans spread principal repayment evenly but require higher periodic payments
What's Inside the Loan Agreement Template
The template is structured the way a banking lawyer would draft it — eight sections covering parties and principal, interest and repayment, security and guarantees, conditions precedent, covenants, events of default and acceleration, and signatures. Easy to adapt for business, director, shareholder or secured asset-backed loans.
1. Parties & Principal
- Lender and borrower details
- Loan amount in figures and words
- Currency and account details
- Drawdown mechanics (single tranche or staged)
2. Interest & Default Rate
- Fixed or variable interest rate
- Reference rate fallback (post-LIBOR)
- Day-count convention (365 / 360)
- Default rate (commonly +2-4% on overdue)
3. Repayment & Prepayment
- Bullet, amortising, interest-only or balloon
- Maturity date and payment dates
- Prepayment rights and break costs
- Application of payments waterfall
4. Security & Guarantees
- Fixed charge / floating charge / debenture
- Mortgage / share pledge / receivables
- Personal guarantee (capped or unlimited)
- Registration mechanics (Companies House / UCC-1)
5. Conditions Precedent
- Certified articles / charter
- Board resolution authorising borrowing
- KYC / AML documents
- Legal opinions for cross-border loans
6. Financial & Operating Covenants
- Interest coverage / leverage ratios
- Information undertakings (financials)
- Restrictions on further indebtedness
- Restrictions on dividends and disposals
7. Events of Default & Acceleration
- Non-payment (with cure period)
- Covenant breach / insolvency / MAC
- Cross-default to other debt
- Acceleration: lender right to call all due
8. Boilerplate & Signatures
- Governing law and jurisdiction
- Notices, assignment, set-off
- Force majeure, partial invalidity
- Both parties sign and date
All sections are editable. Section 2 (interest), Section 3 (repayment) and Section 6 (covenants) are the three areas most often customised — everything else stays consistent across deals. For loans above GBP 250,000 / USD 300,000, take particular care with Section 6 (covenants) and Section 7 (events of default); for secured loans, focus on Section 4 (security) and the registration mechanics.
How to Fill Out a Loan Agreement: Step-by-Step
Establish: Full registered names of lender and borrower, registered addresses, country/state of incorporation, and corporate authority to enter the loan.
- Lender: full registered name, fund name if institutional, registered address
- Borrower: full registered name, company number (UK) or EIN (US)
- Confirm borrowing limits in articles or charter
- For director loans, identify the director and confirm Companies Act sections 197-214 thresholds
- For shareholder loans, document the related-party relationship and any board / shareholder approvals
Specify: The loan amount in figures and words, the currency, the drawdown mechanics, and the bank account for transfer.
- State the principal in figures and words to prevent ambiguity
- State the currency (GBP, USD, EUR) clearly — cross-currency loans need careful drafting
- Single tranche on signing OR staged tranches against milestones / conditions
- For revolving facilities: facility limit, availability period, draw and repay flexibility
- Account details as a schedule (not in the main agreement, to avoid republishing if details change)
Specify: Fixed or variable rate, day-count convention, payment dates, and default rate.
- Fixed rate: state the per-annum rate (e.g. 6.5% pa)
- Variable rate: state the reference rate (BoE base rate, SOFR, SONIA) plus margin (e.g. SONIA + 350 bps)
- Reference rate fallback: critical post-LIBOR — what happens if the rate is discontinued?
- Day-count: actual/365 (UK), 30/360 or actual/360 (US commercial)
- Payment frequency: monthly, quarterly, or on maturity (with periodic interest)
- Default rate: standard rate + 2-4% on overdue amounts
Specify: Repayment structure, maturity date, prepayment rights, and application of payments.
- Bullet: full principal at maturity, periodic interest only
- Amortising: equal principal+interest payments over the term (mortgage-style)
- Interest-only with bullet: interest periodic, principal at maturity
- Balloon: small periodic payments + large final payment
- Maturity date: typically 3-7 years for term loans
- Prepayment: permitted with notice, with or without break costs / make-whole
- Application of payments waterfall: fees first, then interest, then principal
Include: Security over assets if applicable, personal guarantees, and CPs to drawdown.
- Fixed charge: specific identified assets (a property, specific equipment)
- Floating charge: a class of assets that change over time (inventory, receivables)
- Debenture (UK) / UCC-1 (US): all-asset security
- Personal guarantee: cap the guaranteed amount; require independent legal advice for guarantors
- CPs: certified articles, board resolution, KYC/AML documents, security registration evidence, legal opinions for cross-border
- UK: register charges at Companies House within 21 days under section 859A
- US: file UCC-1 financing statements with relevant Secretary of State
Include: Financial and operating covenants; comprehensive events of default with cure periods and acceleration rights.
- Financial covenants: minimum interest coverage (EBITDA / interest), maximum leverage (net debt / EBITDA), minimum tangible net worth
- Operating covenants: monthly / quarterly management accounts, audited annual accounts within 90 days, notification of disputes / litigation / MAC
- Restrictions: no further indebtedness, no disposals above threshold, no dividends above threshold, no change of control
- Events of default: non-payment (3-5 day cure), covenant breach (30-day cure), insolvency (immediate), MAC, cross-default, invalidity of security
- Acceleration: lender's right to call all outstanding amounts immediately due on event of default
Execute: Both parties sign and date; deliver funds; register security; archive documents.
- Use DocuSign, Adobe Sign or HelloSign for ordinary loan agreements
- Deeds (UK property mortgages, some PGs): wet ink with witness OR qualifying e-signature platform
- UK: file MR01 form at Companies House within 21 days of charge creation
- US: file UCC-1 with Secretary of State; record real property mortgages with county recorder
- Send certified copy to borrower's accountant for tax return treatment
- Diary the maturity date and all interest payment dates in lender's portfolio system
- For director loans: diary section 455 review date (9 months and 1 day after company year end)
Critical Success Factors
- Get borrower's corporate authority right — board resolution, articles check, shareholder consent if required
- For UK secured loans, register at Companies House within 21 days — missing this makes security void
- For US secured loans, file UCC-1 promptly — perfection date matters in priority disputes
- Define default interest rate clearly — vague language is unenforceable
- Include reference rate fallback for variable rates (post-LIBOR drafting)
- For director / shareholder loans: document arms-length terms; consider section 455 / IRC 7872 implications
- For personal guarantees: require independent legal advice for the guarantor, document it
Best Practices for Loan Agreements
Drafting and Customisation
- One master template, deal-specific schedules: Maintain a single loan template; vary by repayment schedule, security schedule and covenant package
- Plain English where possible: Borrowers without legal training need to understand what they are signing — especially the events of default and acceleration mechanics
- Schedule discipline: Repayment schedule, security schedule and CP list are the three most-customised sections; populate them with care
- LMA / LSTA reference: For loans above GBP 500,000 / USD 750,000, anchor drafting on LMA (UK / EU) or LSTA (US) standards
- Version control: Date every version; never amend a signed loan without a written amendment letter and counter-signature
Negotiation and Process
- Term sheet first for complex loans: Agree headline terms (amount, rate, security, covenants) on a 2-page term sheet before drafting the full agreement
- KYC and AML at the start: Lender's KYC pack is a standard CP and gating item; collect at term sheet stage to avoid drawdown delays
- Independent legal advice for guarantors: UK and US best practice; document the advice in writing as protection against later claims of duress
- Walk through with both parties' commercial teams: Lawyers can draft, but commercial people need to understand and own the deal economics
- Insurance and tax review: For secured loans, confirm asset insurance coverage; for cross-border loans, run withholding tax analysis early
Storage and Compliance
- Loan register: Maintain a central register of all loans-in and loans-out, with key terms (amount, rate, maturity, security, covenants)
- Covenant tracking: Track financial covenant compliance quarterly; build covenant tests into management reporting
- Maturity diary: Set automated reminders 90 / 60 / 30 days before maturity for refinancing or repayment
- Pre-financing diligence: Lenders ask for a list of all material loans in due diligence; the loan register is the evidence
- Companies House register check: For UK borrowers, periodically check the public charges register to confirm registered security still appears
Modern Practice in 2026
- Reference-rate fallback drafting (post-LIBOR): SOFR / SONIA / ESTR with hardwired or amendment-based fallback
- Loan management platforms (Finastra, nCino, Backbase) for institutional lenders
- Embedded finance APIs for SME lending: Stripe Capital, ClearBank, Wise Business
- Tokenised debt and on-chain loans (early-stage, growing in DeFi)
- Electronic signature platforms (DocuSign, Adobe Sign) for standard execution
- AI-assisted contract review (Lawgeex, LinkSquares, Ironclad) for loan intake review
- Automated covenant testing in management accounts software (Xero, QuickBooks, NetSuite)
Common Mistakes to Avoid
Top 10 Loan Agreement Pitfalls
- Vague repayment schedule: "Repayment as agreed" or similar is unenforceable. Specify exact dates, amounts and payment method — or attach a repayment schedule
- No default interest rate: Without a defined default rate, the lender cannot recover the cost of borrower delay. Include a default rate (commonly +2-4% on overdue amounts)
- Variable rate without fallback: Post-LIBOR, every variable-rate loan needs a fallback if the reference rate is discontinued. Hardwired fallback (specific replacement rate) or amendment-based fallback (lender right to designate)
- Security not registered: UK security void against liquidator if not registered at Companies House within 21 days. US UCC-1 affects priority. Diary the registration deadline
- Missing cross-default trigger: Without it, the borrower can default on other debt without triggering this loan. Include cross-default to other debt above a threshold (commonly GBP 100k / USD 150k)
- No financial covenants for term loans above GBP 250k / USD 300k: Without covenants, the lender has no early warning of borrower distress. Include interest coverage and leverage ratios at minimum
- Acceleration trigger unclear: Specify exactly when the lender can accelerate — immediately for insolvency, after cure period for non-payment and covenant breach
- No prepayment terms: Silence creates ambiguity. State explicitly: prepayment permitted (or not), break costs, make-whole, application to principal vs interest
- Material adverse change (MAC) clause missing or vague: MAC is the lender's safety net for situations not covered by other defaults. Include but draft tightly to avoid unenforceability
- Personal guarantees without independent legal advice: UK and US courts can set aside guarantees if the guarantor was not independently advised, especially in spousal or family contexts. Always require and document independent advice
UK vs US Lending Context
Loan agreement drafting has converged in some areas (LMA and LSTA standards share much common ground) and diverged in others (charge registration, usury caps, related-party loan tax treatment). Here is the side-by-side that matters when drafting.
United Kingdom
UK loan agreements operate under English contract law plus the Companies Act 2006 (charge registration under section 859A within 21 days; director loan rules in sections 197-214), the Late Payment of Commercial Debts (Interest) Act 1998 for default interest, and the Financial Services and Markets Act 2000 for regulated lending. The Loan Market Association (LMA) publishes the standard documentation suite for UK and European leveraged and corporate loans. Charges register at Companies House via form MR01. Close-company loans to participators trigger the section 455 corporation tax charge if not repaid within 9 months and 1 day of year-end; this is a recurring trap for owner-managed businesses.
United States
US loan agreements operate under state contract law plus federal and state overlays. UCC Article 9 governs secured transactions in personal property and requires UCC-1 financing statement filings; UCC Article 3 governs negotiable instruments. State usury laws cap interest rates (commercial loans usually exempt or higher caps but check). The Loan Syndications and Trading Association (LSTA) publishes the US standard documentation. The Truth in Lending Act / Regulation Z applies to consumer loans. Related-party loans under IRC section 7872 require imputed interest at the applicable federal rate (AFR) if below-market.
Both jurisdictions
The substantive economics — interest, repayment, security, covenants, events of default — are similar across both. The differences are in formalities (UK 21-day charge registration vs US UCC-1 perfection), regulatory perimeter (UK FCA scope vs US state lending licences), default interest rate frameworks (UK Late Payment Act vs US state usury caps), and related-party tax treatment (UK section 455 vs US IRC 7872). The template uses jurisdiction-neutral drafting where possible and provides alternative clauses where the law differs — for example, separate registration mechanics for UK Companies House and US UCC, and an optional reference-rate fallback for variable-rate loans.
What founders and finance counsel say
Feedback from founders, in-house finance counsel and finance directors who have used the loan agreement template on real business loans, director loans, shareholder loans and secured asset-backed loan deals.
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Used this for a director loan into the business when we needed working capital between fundraises. The interest, repayment and section 455 considerations are all addressed cleanly — our accountant signed off the documentation in one pass.
Used the secured business loan variant for an asset-backed loan from our bank. The covenants section, conditions precedent list and security registration mechanics for Companies House saved us a meaningful amount of legal time on what was otherwise a routine transaction.
Used the shareholder loan variant for a related-party loan to a portfolio company. The events of default and acceleration drafting is solid. Wish there was a separate revolving facility variant, but for term loans this is a strong starting point.
Used this for an intercompany loan between our UK and US entities. The dual-jurisdiction drafting (English law and Delaware) and the day-count and reference-rate fallback clauses meant we did not have to maintain two separate template versions.
As an in-house finance counsel, the most useful feature of this template is the personal guarantee carve-out and the cross-default trigger. Two areas where less careful templates miss commercial nuance and create real downside risk for borrowers.
Solid foundational template. We used the family loan variant to document a loan from a family office to our holding company — the clarity around interest, repayment and tax treatment kept the relationship clean and the accountants happy.
Loan Agreement — Frequently Asked Questions
A loan agreement is a contract between a lender and a borrower under which the lender provides a sum of money (the principal) on terms that the borrower will repay it, usually with interest, by a defined date or schedule. Unlike a promissory note — which is the borrower's one-sided promise to pay — a loan agreement is a two-sided contract that can include detailed protections: covenants regulating the borrower's conduct during the loan, security over assets, personal guarantees, financial reporting requirements, events of default and acceleration mechanics, and prepayment terms. Loan agreements are used for business loans, intercompany loans, director and shareholder loans, secured asset-backed loans, and any commercial debt where the parties want more than a simple IOU.
A promissory note is a one-sided written promise by the borrower to pay a defined sum to the lender, usually a single page or two. A loan agreement is a two-sided contract with much more detail — covenants, events of default, security, guarantees, acceleration, prepayment terms, conditions precedent. Practical guidance: use a promissory note for small, simple, single-tranche loans where trust between the parties is high (commonly under GBP 25,000 / USD 30,000); use a loan agreement for anything larger, or where security or guarantees are involved, or where the loan has multiple drawdowns or a complex repayment schedule. The two can be used together: a loan agreement is the master document, with a promissory note attached to evidence the debt for accounting and legal purposes.
An unsecured loan is supported only by the borrower's promise to pay — if the borrower defaults, the lender's only remedy is to sue for the debt and rank as an unsecured creditor in any insolvency. A secured loan is supported by collateral: specific assets (a fixed charge over property, plant or equipment), classes of assets (a floating charge over inventory and receivables), all-asset security (a UK debenture or US UCC-1 all-asset filing), real property (a mortgage), shares (a share pledge), or specific receivables (an assignment). On default, the lender can enforce the security and recover from the proceeds, with priority over unsecured creditors. Secured loans typically carry lower interest rates than unsecured loans because the lender's risk is lower. Security must be properly registered to be effective: UK charges at Companies House within 21 days; US UCC-1 filings with the relevant Secretary of State.
Simple interest is calculated only on the original principal (e.g. GBP 100,000 at 6% simple interest is GBP 6,000 per year, every year). Compound interest is calculated on the principal plus accrued unpaid interest, so the interest base grows over time (e.g. GBP 100,000 at 6% compound annually becomes GBP 106,000 after year 1, GBP 112,360 after year 2). Most commercial loan agreements use simple interest, paid periodically (monthly or quarterly), so the interest never compounds. Default interest, however, often does compound — if the borrower fails to pay accrued interest, the unpaid amount is added to principal and starts accruing further interest. State explicitly: the interest rate, day-count convention (actual/365 in UK, 30/360 or actual/360 in US for commercial loans), payment frequency, and whether and how unpaid interest compounds.
A personal guarantee (PG) is a separate contract under which an individual (typically a director, founder or shareholder of the borrower) personally promises to repay the loan if the borrower defaults. Lenders require PGs commonly for SME loans where the borrower's standalone credit is limited — the PG gives the lender a second source of recovery. PGs can be unlimited (the guarantor is liable for the full debt) or capped (limited to a defined amount). PGs survive the borrower's insolvency, which is exactly when they become valuable to the lender. UK PGs over GBP 5,000 should be properly drafted as deeds with witness signatures; US PGs vary by state but generally require clear, specific language. Guarantors should obtain independent legal advice before signing — this is sometimes a requirement in the bank's lending policy and protects the PG from being challenged later as oppressive or unconscionable.
Events of default are circumstances in which the lender has the right to declare the loan immediately due and payable in full (acceleration), even if the loan is otherwise within term. Standard events of default include: non-payment of interest or principal when due (with a short cure period, commonly 3-5 business days); breach of covenants (with a 30-day cure period for non-payment defaults); insolvency or appointment of an administrator/receiver (immediate, no cure); material adverse change (MAC) — a deterioration in the borrower's financial condition or business that materially impairs the lender's position; cross-default — default on other debt above a threshold; invalidity or unenforceability of security or guarantees. Acceleration converts the loan from an instalment obligation into a single immediately-payable debt and crystallises the lender's right to enforce security and call on guarantees.
Loan covenants are promises by the borrower regulating its conduct during the life of the loan. Financial covenants are quantitative tests on the borrower's financial position, calculated periodically (commonly quarterly). The most common: minimum interest coverage ratio (EBITDA divided by interest expense, typically 2:1 or higher); maximum leverage ratio (net debt divided by EBITDA, typically 3:1 to 4:1 for SMEs); minimum tangible net worth; maximum capex. Operating covenants are qualitative: information undertakings (audited annual accounts within 90 days, monthly management accounts), notification of material disputes or litigation, restrictions on further indebtedness without lender consent, restrictions on disposals of assets above a threshold, restrictions on dividends or distributions, change-of-control prohibitions. Covenants are most relevant for term loans above GBP 250,000 / USD 300,000; smaller loans typically rely on personal guarantees instead of covenants.
For small, straightforward unsecured business loans (commonly under GBP 50,000 / USD 60,000) a well-drafted template is usually sufficient, with both parties reviewing the key commercial terms (amount, interest, repayment date, default rate). Get commercial / banking counsel involved when: the loan is secured (because security needs to be properly drafted and registered to be effective); the loan involves personal guarantees (guarantors typically need independent legal advice); the loan exceeds GBP 250,000 / USD 300,000 (covenant package needs careful drafting); the loan is cross-border or in multiple currencies; the loan is from a director or shareholder (related-party tax implications, board authorisation); or the loan is part of a wider transaction (acquisition financing, restructuring). The cost of an hour with banking counsel is small compared to the cost of unenforceable security or a covenant package that is too tight or too loose for the borrower's actual financial profile.
Download the Loan Agreement Template
This loan agreement template handles every standard commercial lending scenario: business term loans, revolving credit facilities, director loans, shareholder loans, intercompany loans between affiliated entities, secured asset-backed loans, and family or friends loans. Includes precise principal and drawdown drafting, fixed and variable interest options with reference-rate fallback (post-LIBOR), full repayment schedule variants (bullet, amortising, interest-only and balloon), security and personal guarantee mechanics with registration drafting for both UK Companies House (MR01) and US UCC-1 filings, comprehensive financial and operating covenants, and a tested events-of-default and acceleration regime aligned with both UK (LMA) and US (LSTA) market standards.
What's Included in Your Template
- Complete loan agreement template in Word, PDF and Google Docs formats
- Variants for business loans, director loans, shareholder loans and secured asset-backed loans in a single document
- Fixed and variable interest rate drafting with reference-rate fallback (SONIA, SOFR, ESTR)
- Repayment schedule variants: bullet, amortising, interest-only with bullet, and balloon
- Day-count convention and payment-application waterfall drafting
- Security drafting: fixed charge, floating charge, debenture, mortgage, share pledge, receivables assignment
- Companies House MR01 charge registration mechanics (UK) and UCC-1 financing statement mechanics (US)
- Personal guarantee with capped liability variant and independent legal advice declaration
- Conditions precedent (CP) checklist: certified articles, board resolution, KYC/AML, security registration evidence, legal opinions
- Financial covenant package: interest coverage, leverage, tangible net worth, capex limits
- Operating covenants: information undertakings, restrictions on indebtedness, disposals, dividends, change of control
- Events of default with cure periods, MAC clause, cross-default, acceleration mechanics
- Prepayment regime: voluntary prepayment, mandatory prepayment, break costs, make-whole
- UK section 455 close-company review reminder for director / shareholder loans
Why Founders Choose This Template
- Hand-drafted: Written by founders for founders, with input from banking / commercial counsel in both jurisdictions
- Dual jurisdiction: Works for UK and US lending without maintaining two separate templates
- 2026 current: Reflects current UK Companies Act 2006 / Late Payment Act / FSMA practice and US UCC Article 9 / state usury / IRC section 7872 framework
- Plain English: Drafted to be readable by founders and finance teams; technical and legal language reserved for clauses where precision matters
- LMA / LSTA-aligned: Drafting anchored on Loan Market Association (UK / EU) and Loan Syndications and Trading Association (US) market standards
- Founder-friendly pricing: One small fee for unlimited use, not per-loan or per-borrower
- Editable everything: Word, PDF and Google Docs — edit in whatever tool you use
This template is provided as a starting point and is not legal advice. Loan terms vary by deal size, security, jurisdiction and borrower / lender profile. For secured loans (where security drafting and registration mechanics matter), loans involving personal guarantees, loans above GBP 250,000 / USD 300,000, cross-border or multi-currency loans, related-party loans (director / shareholder), or loans forming part of acquisition financing or restructuring, have banking / commercial counsel review before signing. The clauses set in the loan propagate through the entire term — an unenforceable charge, an ill-fitting covenant package, or vague default mechanics surface as enforcement disputes long after the deal is signed.