Loan Agreement Template
A loan agreement records the terms on which one party lends money to another and is the single most important document if repayment ever becomes disputed. Our free Canadian template covers principal, interest, repayment schedule, default and collateral, and is drafted to comply with the federal Interest Act and provincial secured transactions legislation.
What Is a Loan Agreement?
A loan agreement is a written contract between a lender and a borrower that sets out the amount advanced, the rate of interest (if any), the repayment schedule and the consequences of default. It converts an informal “IOU” into a fully enforceable contract and is used by banks, private lenders, family members and businesses right across Canada.
Canadian loan agreements are governed by the common law of contract in nine provinces, by the Civil Code in Quebec, and by a handful of federal statutes that apply to interest and negotiable instruments. The Interest Act, R.S.C. 1985, c. I-15 is especially important: section 4 requires any interest expressed per period other than a year to also be stated as an annual rate, and section 3 fills in a 5% default rate when the agreement is silent but interest is payable by law.
The agreement can be secured or unsecured. Secured loans take a charge over specific collateral — vehicles, equipment, receivables — under the Personal Property Security Act (PPSA) of the relevant province, which lets the lender register a financing statement and repossess the collateral on default. Unsecured loans rely on the borrower’s general creditworthiness and the lender’s ability to sue on the debt.
What's Covered in This Template
Our loan agreement template includes the operational, financial and enforcement clauses Canadian lenders and borrowers expect to see.
Lender and Borrower Details
Full legal names, Canadian addresses and, for companies, the jurisdiction of incorporation.
Principal Amount
The total sum advanced, the currency (CAD) and the date of disbursement.
Interest Rate
A fixed or variable rate expressed per annum to satisfy section 4 of the Interest Act.
Repayment Schedule
Installment amounts, frequency, start date and final maturity date.
Prepayment Rights
Whether the borrower can repay early without penalty, a common clause in private Canadian loans.
Late Payment Charges
Default interest or administration fees applied when a scheduled payment is missed.
Security / Collateral
Optional clause granting a security interest in personal property registered under the PPSA.
Events of Default
Missed payments, insolvency, misrepresentation and cross-default triggers that accelerate the loan.
Acceleration and Remedies
The lender’s right to demand the full balance and sue for the debt on default.
Governing Law and Jurisdiction
Choice of provincial law and courts (commonly Ontario, British Columbia or Alberta).
How to Create a Loan Agreement
Follow these steps to produce a signed, Canadian-compliant loan agreement.
- 1
Confirm the Loan Structure
Decide whether the loan is demand or term, secured or unsecured, fixed or variable rate.
- 2
Enter Party Details
Add the lender, the borrower and any guarantors with full legal names and addresses.
- 3
Set the Financial Terms
Specify principal, annual interest rate, repayment amount, frequency and maturity date.
- 4
Add Security if Needed
Describe the collateral and plan to register a PPSA financing statement after signing.
- 5
Sign and Register
Both parties sign; a guarantor signs separately. Register security in the provincial PPSA where applicable.
Legal Considerations
Canadian loan agreements must respect federal interest rules, provincial security regimes and the criminal cap on interest.
This template is for informational purposes only and does not constitute legal advice. Consult a qualified lawyer in your province for advice specific to your situation.
Reviewed for Canadian law
The Interest Act and Annual-Rate Requirement
Section 4 of the Interest Act, R.S.C. 1985, c. I-15 provides that if interest is made payable at a rate for any period less than a year and the yearly-rate equivalent is not also stated, no more than 5% per annum can be recovered. Section 3 fills in a 5% default rate when interest is payable by law but the rate is silent. Always express the rate as a percentage per annum to avoid a section 4 haircut.
Criminal Interest Rate Cap
Section 347 of the Criminal Code, R.S.C. 1985, c. C-46 makes it an offence to enter into or receive payment of interest at an effective annual rate above 60%. This cap includes fees, insurance premiums and other charges characterised as “cost of borrowing”, so late-payment and administration charges must be monitored. Recent amendments have further reduced the cap for certain consumer loans.
Personal Property Security Acts
Each common-law province has its own PPSA, for example the Personal Property Security Act, R.S.O. 1990, c. P.10 in Ontario and the Personal Property Security Act, R.S.B.C. 1996, c. 359 in British Columbia. To perfect a security interest the lender must register a financing statement in the provincial PPSA registry; priority on the borrower’s insolvency typically goes to the first-registered secured party.
Limitation Periods
In most provinces, a lender has two years from the date of default to commence a claim on the loan under statutes like the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B in Ontario or the Limitation Act, S.B.C. 2012, c. 13 in British Columbia. A written, signed acknowledgement of the debt can restart the limitation clock, which is why lenders should document any partial payment or confirmation from the borrower.
Frequently Asked Questions
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