Loan Agreement Template 2025
Professional loan agreement template with comprehensive guide. Learn what a loan agreement is, how to fill it out, and download our template designed by legal experts for personal loans, business loans, and family lending.
Download TemplateWhat is a Loan Agreement?
A loan agreement is a legal contract between a lender and borrower that outlines the terms and conditions of a loan transaction. It specifies the loan amount, interest rate, repayment schedule, collateral (if any), and consequences of default. This document provides legal protection for both parties and establishes clear expectations for the lending relationship, making it enforceable in court if disputes arise.
Loan agreements are essential for any lending situation, whether between banks and customers, private individuals, family members, or businesses. They serve as the foundation for the lending relationship, protecting lenders' interests while ensuring borrowers understand their obligations. A well-drafted loan agreement helps prevent misunderstandings and provides a clear framework for resolving disputes should they occur.
📋 Key Components of a Loan Agreement
- Loan amount - principal amount being borrowed
- Interest rate - annual percentage rate and calculation method
- Repayment schedule - payment amounts, frequency, and due dates
- Loan term - duration of the loan and maturity date
- Default provisions - consequences of missed payments or breach
- Collateral details - security for the loan (if applicable)
- Legal provisions - governing law, jurisdiction, and signatures
Types of Loan Agreements
| Loan Type | Purpose | Security | Typical Terms |
|---|---|---|---|
| Personal Loan | Individual borrowing needs | Usually unsecured | 1-7 years, fixed payments |
| Business Loan | Business operations, expansion | Business assets, guarantees | 1-10 years, various structures |
| Family Loan | Lending between relatives | Often unsecured | Flexible terms, low/no interest |
| Mortgage Loan | Real estate purchase | Secured by property | 15-30 years, monthly payments |
| Auto Loan | Vehicle purchase | Secured by vehicle | 3-7 years, monthly payments |
By Security Type
- Secured Loans: Backed by collateral such as real estate, vehicles, or business assets
- Unsecured Loans: Based on borrower's creditworthiness without specific collateral
- Guaranteed Loans: Third-party guarantee or co-signer backing the loan
- Asset-Based Loans: Secured by specific business assets like inventory or receivables
By Interest Structure
- Fixed Rate Loans: Interest rate remains constant throughout the loan term
- Variable Rate Loans: Interest rate fluctuates based on market conditions
- Interest-Only Loans: Payments cover only interest for initial period
- Zero Interest Loans: No interest charged, often for family or promotional loans
✅ Loan Agreement vs. Other Documents
- Loan Agreement: Comprehensive contract between lender and borrower
- Promissory Note: Borrower's written promise to repay, simpler document
- IOU: Informal acknowledgment of debt, not legally comprehensive
- Credit Agreement: Ongoing credit facility rather than single loan
- Security Agreement: Separate document establishing collateral rights
Essential Loan Agreement Terms
Principal and Interest Terms
- Principal Amount: Total amount being borrowed
- Interest Rate: Annual percentage rate (APR) and calculation method
- Interest Type: Simple or compound interest calculation
- Rate Adjustments: Conditions for variable rate changes
- Accrual Method: How interest accrues (daily, monthly, annually)
- Payment Application: How payments are applied to principal and interest
Repayment Structure
- Payment Amount: Regular payment amount and calculation
- Payment Schedule: Frequency (monthly, quarterly, annually)
- Due Dates: Specific dates when payments are due
- Payment Method: How payments should be made
- Grace Period: Time allowed before late fees apply
- Prepayment Rights: Ability to pay early without penalty
Default and Remedies
- Default Events: Specific conditions constituting default
- Notice Requirements: Required notice before declaring default
- Cure Period: Time allowed to remedy default
- Late Fees: Penalties for late payments
- Acceleration: Lender's right to demand full payment
- Collection Costs: Borrower's responsibility for collection expenses
Security and Guarantees
- Collateral Description: Detailed description of security
- Security Interest: Lender's rights in collateral
- Insurance Requirements: Required insurance on collateral
- Guarantor Information: Details of any guarantors
- Cross-Default: Default on other loans triggering this default
- Maintenance Requirements: Borrower's duty to maintain collateral
Borrower Representations and Covenants
- Financial Condition: Statements about borrower's financial status
- Use of Proceeds: Permitted uses for loan funds
- Financial Reporting: Required financial statements and reports
- Negative Covenants: Things borrower agrees not to do
- Affirmative Covenants: Things borrower agrees to do
- Material Changes: Duty to notify of significant changes
⚠️ Critical Loan Agreement Considerations
- Clearly define all financial terms and calculation methods
- Specify exact payment amounts, dates, and application methods
- Include comprehensive default provisions and remedies
- Address collateral requirements and security interests
- Ensure compliance with applicable lending laws
- Consider tax implications for both parties
How to Fill Out a Loan Agreement: Step-by-Step Guide
1
Identify Parties and Basic Loan Information
Establish: Complete information about the lender, borrower, and basic loan details.
- Lender's full legal name, address, and contact information
- Borrower's complete identification and contact details
- Loan amount (principal) in both numbers and words
- Purpose of the loan and intended use of funds
- Date of the agreement and loan disbursement date
2
Set Interest Rate and Calculation Method
Define: Interest rate structure and how interest will be calculated and applied.
- Annual percentage rate (APR) or interest rate
- Fixed or variable rate structure
- Interest calculation method (simple or compound)
- Interest accrual frequency (daily, monthly, annually)
- Rate adjustment provisions for variable rates
3
Establish Repayment Schedule and Terms
Structure: Payment amounts, frequency, and specific due dates for repayment.
- Total loan term and maturity date
- Payment amount and calculation method
- Payment frequency (monthly, quarterly, etc.)
- Specific due dates and payment methods
- Grace period and late payment provisions
4
Define Default Provisions and Remedies
Specify: What constitutes default and what remedies are available to the lender.
- Specific events that constitute default
- Notice requirements before declaring default
- Cure period for remedying defaults
- Late fees and penalty provisions
- Acceleration rights and collection procedures
5
Include Security and Guarantee Provisions
Address: Collateral requirements, security interests, and any guarantees.
- Detailed description of any collateral
- Security interest and perfection requirements
- Insurance requirements for collateral
- Guarantor information and guaranty terms
- Cross-default and cross-collateralization provisions
6
Add Legal Provisions and Execution Requirements
Include: Legal enforceability provisions, governing law, and signature requirements.
- Governing law and jurisdiction clauses
- Dispute resolution procedures
- Amendment and modification requirements
- Severability and entire agreement clauses
- Signature blocks and notarization requirements
⚠️ Legal Compliance and Regulations
Loan agreements must comply with federal and state lending laws, including truth-in-lending requirements, usury laws, and fair lending practices. Interest rates must not exceed legal limits, and all required disclosures must be included. Consider consulting with legal counsel for complex loans or when lending regulations are unclear.
Interest Rates and Payment Calculations
Interest Rate Types
- Fixed Interest Rate: Rate remains constant throughout loan term
- Variable Interest Rate: Rate fluctuates based on market conditions or index
- Prime Rate Plus: Variable rate based on prime rate plus margin
- LIBOR/SOFR Based: Rate tied to benchmark interest rates
- Stepped Rates: Rate changes at predetermined intervals
- Zero Interest: No interest charged, principal only repayment
Interest Calculation Methods
- Simple Interest: Interest calculated only on principal amount
- Compound Interest: Interest calculated on principal plus accrued interest
- Daily Compounding: Interest compounded daily (365/365 method)
- Monthly Compounding: Interest compounded monthly
- Annual Compounding: Interest compounded once per year
- Actual/360: Interest calculated using 360-day year
Payment Structures
- Level Payments: Equal monthly payments of principal and interest
- Interest-Only Payments: Pay only interest for initial period
- Principal and Interest: Payments include both principal and interest
- Balloon Payments: Large final payment with smaller periodic payments
- Graduated Payments: Payments increase over time
- Seasonal Payments: Payments vary by season or business cycle
Fees and Additional Costs
- Origination Fees: Upfront fees for processing the loan
- Late Payment Fees: Penalties for missed or late payments
- Prepayment Penalties: Fees for early repayment
- NSF Fees: Charges for insufficient funds
- Collection Costs: Expenses for default collection efforts
- Legal Fees: Costs for legal proceedings
💡 Interest Rate and Payment Best Practices
- Clearly specify the interest rate calculation method
- Include examples of payment calculations
- Address how partial payments are applied
- Specify rounding conventions for calculations
- Include amortization schedule when appropriate
- Ensure compliance with usury laws and rate caps
Collateral and Security Provisions
Types of Collateral
- Real Estate: Residential or commercial property securing the loan
- Vehicles: Cars, trucks, boats, or other vehicles
- Business Assets: Equipment, inventory, accounts receivable
- Securities: Stocks, bonds, or other investment securities
- Bank Accounts: Deposit accounts or certificates of deposit
- Personal Property: Jewelry, art, collectibles, or other valuables
Security Interest Requirements
- Detailed Description: Specific identification of collateral
- Perfection Requirements: Filing UCC statements or other notices
- Priority Rights: Lender's priority over other creditors
- Insurance Requirements: Mandatory insurance coverage
- Maintenance Obligations: Borrower's duty to maintain collateral
- Use Restrictions: Limitations on collateral use or disposal
Collateral Valuation and Monitoring
- Initial Valuation: Professional appraisal or valuation
- Loan-to-Value Ratio: Maximum percentage of collateral value
- Periodic Revaluation: Regular updates to collateral value
- Inspection Rights: Lender's right to inspect collateral
- Additional Collateral: Requirements for additional security
- Release Conditions: When collateral may be released
Default and Foreclosure Procedures
- Default Notice: Required notice before foreclosure action
- Cure Rights: Borrower's right to cure default
- Foreclosure Methods: Judicial or non-judicial foreclosure
- Sale Procedures: Public or private sale of collateral
- Surplus Distribution: Distribution of excess sale proceeds
- Deficiency Rights: Lender's rights for shortfall amounts
Personal Guarantees
- Guarantor Identification: Complete information about guarantors
- Guarantee Scope: Full or limited guarantee coverage
- Joint and Several Liability: Multiple guarantor obligations
- Continuing Guarantee: Guarantee surviving loan modifications
- Release Conditions: When guarantors may be released
- Guarantor Rights: Rights of guarantors against borrower
⚠️ Security and Collateral Considerations
- Ensure proper perfection of security interests
- Verify clear title and ownership of collateral
- Maintain adequate insurance coverage on collateral
- Comply with applicable foreclosure laws and procedures
- Consider environmental and regulatory issues for real estate
- Document guarantor financial capacity and understanding
Legal and Regulatory Compliance
Federal Lending Laws
- Truth in Lending Act (TILA): Required disclosures for consumer loans
- Equal Credit Opportunity Act: Prohibition against lending discrimination
- Fair Credit Reporting Act: Requirements for credit checks and reporting
- Real Estate Settlement Procedures Act: Disclosures for real estate loans
- Fair Debt Collection Practices Act: Debt collection procedure requirements
- Dodd-Frank Act: Additional consumer protection requirements
State Lending Regulations
- Usury Laws: Maximum interest rate limitations
- Licensing Requirements: Lender licensing and registration
- Disclosure Requirements: State-specific disclosure obligations
- Foreclosure Laws: State-specific foreclosure procedures
- Consumer Protection: Additional state consumer protections
- Recording Requirements: Document recording and filing obligations
Tax Implications
- Interest Income: Lender's tax obligations on interest received
- Interest Deduction: Borrower's ability to deduct interest paid
- Imputed Interest: IRS imputed interest rules for below-market loans
- Gift Tax Issues: Family loan gift tax considerations
- Form 1099-INT: Required interest reporting forms
- Bad Debt Deductions: Tax treatment of loan losses
Documentation and Record Keeping
- Required Disclosures: Truth-in-lending and other mandatory disclosures
- Payment Records: Detailed records of all payments and transactions
- Correspondence Files: Documentation of all borrower communications
- Default Documentation: Records of default notices and collection efforts
- Collateral Records: Documentation of security interests and valuations
- Compliance Audits: Regular review of regulatory compliance
⚠️ Compliance Risk Management
- Ensure compliance with all applicable federal and state lending laws
- Verify current interest rate limits and usury law compliance
- Provide all required disclosures before loan execution
- Maintain detailed records for regulatory examination
- Consider tax implications for both lender and borrower
- Consult legal counsel for complex or large loan transactions
Common Loan Agreement Mistakes to Avoid
Documentation and Drafting Errors
- Vague Terms: Ambiguous language regarding payment terms or default
- Inconsistent Information: Conflicting terms within the same document
- Missing Essential Terms: Omitting critical elements like interest rates or due dates
- Improper Calculations: Errors in payment amounts or interest calculations
- Inadequate Default Provisions: Unclear consequences of default
- Poor Collateral Description: Insufficient identification of security
Legal and Compliance Mistakes
- Usury Violations: Interest rates exceeding legal limits
- Missing Disclosures: Failing to provide required truth-in-lending disclosures
- Improper Security Interests: Failing to properly perfect security interests
- Unlicensed Lending: Lending without required licenses
- Discrimination Issues: Violating fair lending practices
- Inadequate Record Keeping: Poor documentation and record maintenance
Financial and Commercial Errors
- Inadequate Credit Assessment: Poor evaluation of borrower's ability to repay
- Insufficient Collateral: Security that doesn't adequately cover loan amount
- No Payment Monitoring: Failing to track payments and defaults promptly
- Weak Collection Procedures: Inadequate default and collection processes
- Ignoring Market Conditions: Not adjusting terms for current market conditions
- Tax Planning Oversights: Ignoring tax implications for both parties
Relationship and Communication Issues
- Poor Communication: Unclear expectations and inadequate communication
- Lack of Documentation: Informal agreements without proper documentation
- Mixing Personal and Business: Confusing personal relationships with business obligations
- No Default Procedures: Lack of clear procedures for handling difficulties
- Emotional Decision Making: Letting emotions override sound lending practices
- Inadequate Monitoring: Not staying informed about borrower's financial condition
⚠️ High-Risk Lending Scenarios
- First-time lending without legal or financial advice
- Family loans without proper documentation
- High-dollar loans without adequate security
- Variable rate loans without rate caps
- Cross-border loans with currency and legal risks
- Loans to financially distressed borrowers
Loan Administration and Management
Payment Processing and Tracking
- Payment Collection: Automated payment systems and collection procedures
- Payment Application: Proper application of payments to principal and interest
- Late Payment Management: Systematic handling of delinquent payments
- Payment History: Detailed records of all payment transactions
- Balance Calculations: Accurate tracking of outstanding balances
- Statement Generation: Regular account statements and reports
Borrower Communication and Relations
- Regular Contact: Periodic check-ins and relationship maintenance
- Payment Reminders: Proactive payment reminder systems
- Financial Monitoring: Ongoing assessment of borrower financial condition
- Modification Requests: Procedures for handling loan modification requests
- Problem Resolution: Early intervention for payment difficulties
- Customer Service: Responsive service for borrower inquiries
Risk Management and Monitoring
- Credit Monitoring: Ongoing monitoring of borrower creditworthiness
- Collateral Monitoring: Regular valuation and inspection of security
- Insurance Monitoring: Verification of required insurance coverage
- Early Warning Systems: Identification of potential problem loans
- Portfolio Analysis: Regular analysis of loan portfolio performance
- Reserve Management: Adequate reserves for potential losses
Default Management and Collection
- Default Identification: Early identification of default conditions
- Notice Procedures: Formal default notice and cure procedures
- Collection Strategies: Systematic approach to collection efforts
- Workout Procedures: Loan modification and workout options
- Legal Action: Procedures for pursuing legal remedies
- Recovery Optimization: Maximizing recovery from defaulted loans
🎯 Effective Loan Management Elements
- Automated payment processing and tracking systems
- Proactive borrower communication and relationship management
- Early warning systems for identifying potential problems
- Clear procedures for handling defaults and collections
- Regular portfolio analysis and risk assessment
- Comprehensive record keeping and documentation
Frequently Asked Questions
The key differences between secured and unsecured loans are:
- Secured loans: Backed by collateral that the lender can seize if borrower defaults
- Unsecured loans: Not backed by specific collateral, rely on borrower's creditworthiness
- Risk: Secured loans have lower risk for lenders, unsecured loans have higher risk
- Interest rates: Secured loans typically have lower rates due to reduced risk
- Collection: Secured lenders can foreclose on collateral, unsecured lenders must pursue other remedies
- Loan amounts: Secured loans often allow larger loan amounts
Interest rate calculation and disclosure requirements include:
- Annual Percentage Rate (APR): Must be clearly stated and calculated correctly
- Calculation method: Specify simple vs. compound interest calculation
- Compounding frequency: Daily, monthly, or annual compounding
- Payment application: How payments are applied to principal and interest
- Truth-in-lending: Federal disclosure requirements for consumer loans
- Usury compliance: Ensure rates don't exceed state legal limits
Always provide examples of payment calculations and total interest costs over the loan term.
Loan modifications are possible but require proper procedures:
- Mutual agreement: Both parties must agree to any modifications
- Written amendments: All changes should be documented in writing
- Consideration: Modifications may require additional consideration
- Legal review: Complex modifications should be reviewed by legal counsel
- Disclosure requirements: Consumer loans may require new disclosures
- Security interests: Modifications may affect collateral rights
The original loan agreement should include procedures for requesting and approving modifications.
Default procedures typically follow this progression:
- Default notice: Formal notice informing borrower of default
- Cure period: Time allowed for borrower to remedy the default
- Acceleration: Lender may demand immediate payment of entire balance
- Collection efforts: Phone calls, letters, and collection agency involvement
- Legal action: Lawsuit to obtain judgment against borrower
- Collateral foreclosure: Sale of secured collateral to satisfy debt
The specific procedures depend on loan terms, state law, and whether the loan is secured or unsecured.
Family loans can be legally enforceable if properly documented:
- Written agreement: Formal written loan agreement is essential
- Commercial terms: Market-rate interest and reasonable terms
- Documentation: Proper record keeping of payments and communications
- Intent to enforce: Clear intent to create legal obligations
- Tax compliance: Proper reporting of interest income and deductions
- Gift vs. loan: Clear distinction from gifts or informal family support
Without proper documentation, family loans may be viewed as gifts by courts and tax authorities.
Tax implications vary for lenders and borrowers:
- Lender tax obligations: Interest received is taxable income
- Borrower deductions: Interest may be deductible depending on loan purpose
- Below-market loans: IRS may impute interest at minimum rates
- Gift tax issues: Below-market family loans may trigger gift tax
- Business loans: Different rules for business vs. personal loans
- Reporting requirements: Form 1099-INT for interest payments over $600
Consult tax professionals for specific situations, especially for family loans or complex structures.
Loan Agreement Best Practices and Expert Tips
For Lenders
- Credit Assessment: Thoroughly evaluate borrower's ability to repay before lending
- Proper Documentation: Use comprehensive loan agreements with all essential terms
- Security Protection: Obtain adequate collateral and properly perfect security interests
- Compliance Management: Ensure full compliance with all applicable lending laws
- Risk Management: Diversify loan portfolio and maintain adequate reserves
- Professional Advice: Consult legal and tax professionals for complex transactions
For Borrowers
- Realistic Assessment: Honestly evaluate ability to repay before borrowing
- Term Understanding: Fully understand all loan terms and obligations
- Payment Planning: Develop realistic budget and payment plan
- Communication: Maintain open communication with lender
- Early Intervention: Contact lender immediately if payment problems arise
- Professional Review: Have legal counsel review complex loan agreements
Documentation Best Practices
- Clear Language: Use precise, unambiguous language throughout
- Complete Terms: Include all essential terms and conditions
- Consistent Information: Ensure all numbers and terms are consistent
- Proper Execution: Ensure proper signing, witnessing, and notarization
- Record Keeping: Maintain complete records of all loan documents and communications
- Regular Updates: Update documents as laws and regulations change
Risk Management Strategies
- Due Diligence: Conduct thorough borrower and collateral due diligence
- Diversification: Avoid concentration in single borrower or industry
- Insurance Requirements: Require appropriate insurance coverage
- Monitoring Systems: Implement systems for ongoing loan monitoring
- Early Warning Systems: Identify potential problems before they become critical
- Professional Network: Maintain relationships with legal, accounting, and collection professionals
Relationship Management
- Professional Approach: Maintain professional relationships even with family and friends
- Clear Expectations: Set clear expectations from the beginning
- Regular Communication: Maintain ongoing communication throughout loan term
- Problem Solving: Work collaboratively to resolve issues
- Respect Boundaries: Respect the business nature of the lending relationship
- Exit Planning: Plan for successful loan completion and relationship preservation
🏆 Loan Agreement Success Factors
- ✅ Comprehensive documentation with clear terms and conditions
- ✅ Thorough credit assessment and realistic repayment expectations
- ✅ Adequate security and proper legal compliance
- ✅ Professional approach to lending relationships
- ✅ Effective monitoring and administration systems
- ✅ Proactive communication and problem resolution
Download Loan Agreement Template
Our comprehensive loan agreement template includes all essential provisions for various lending scenarios. The template is designed by legal and financial experts and includes:
- Complete loan agreement with standard and advanced provisions
- Customizable terms for personal, business, and family loans
- Detailed instructions and guidance for each section
- Alternative clauses for secured and unsecured loans
- Compliance guidance for federal and state lending laws
- Sample payment calculations and amortization schedules
⚖️ Legal Disclaimer
Important: This template is provided for educational and informational purposes only and does not constitute legal or financial advice. Loan agreements involve complex legal, financial, and regulatory requirements that vary by jurisdiction, loan type, and specific circumstances.
Always consult with qualified legal counsel, financial advisors, and tax professionals before using any loan agreement template. The template should be customized for your specific situation and reviewed by experienced professionals to ensure compliance with applicable laws and adequate protection of your interests.
Lending involves significant financial risks and legal obligations that can have major impacts on both lender and borrower. Proper due diligence, credit assessment, legal documentation, and ongoing loan administration are essential for successful lending relationships.
MyPitchDecks.com makes no warranties regarding the completeness, accuracy, or suitability of this template for any particular purpose and disclaims all liability for any damages arising from its use.