Free Business Loan Agreement Template
A business loan agreement sets out the terms on which one party lends money to a business. Whether the loan comes from a director, shareholder, family member, or another company, a written agreement protects both lender and borrower and provides a clear record for HMRC.
"Business Day" means a day (other than Saturday, Sunday or a public holiday) on which banks are open for general business in London.
"Drawdown Date" means 2026-05-01.
"Event of Default" has the meaning given in clause 6.
"Final Repayment Date" means the date falling 36 months after the Drawdown Date.
"Insolvency Event" means any event listed in Schedule 1 to the Insolvency Act 1986 or any equivalent proceeding.
"Principal" means £150,000.00.
"Repayment Period" means the period from the Drawdown Date to the Final Repayment Date.
References to statutes include any statutory modification or re-enactment. Headings are for convenience only and do not affect interpretation.
Purpose: The Principal shall be applied solely towards working capital and purchase of CNC milling equipment. The Borrower warrants that the loan is being taken wholly or predominantly for the purposes of a business carried on, or intended to be carried on, by it and accordingly that this Agreement is an exempt agreement under article 60C of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 and not a regulated credit agreement under the Consumer Credit Act 1974.
Drawdown: The Principal shall be advanced in a single tranche by bank transfer in immediately available cleared funds to the bank account notified by the Borrower to the Lender in writing, on or before 2026-05-01, subject to satisfaction (or waiver by the Lender) of the Conditions Precedent set out in clause 8 (where applicable).
Nothing in this Agreement excludes or limits the Lender's entitlement to statutory interest and compensation under the Late Payment of Commercial Debts (Interest) Act 1998 where any payment is overdue.
The first Repayment Date shall be 2026-06-01 and subsequent Repayment Dates shall fall on the corresponding day of each successive month thereafter.
All payments by the Borrower shall be made in pounds sterling by bank transfer to the account nominated by the Lender in writing, without any set-off, counterclaim, or deduction (save as required by law). If a payment falls due on a day that is not a Business Day, it shall be made on the next Business Day.
The limitation period for any action on the Principal is six (6) years from the date on which the cause of action accrued (Limitation Act 1980, s.5) or, if this Agreement is executed as a deed, twelve (12) years (s.8).
(a) it is duly incorporated or formed and validly existing under the laws of its jurisdiction of incorporation and has full power and authority to enter into and perform this Agreement;
(b) entry into and performance of this Agreement has been duly authorised by all necessary corporate, partnership or other action;
(c) this Agreement constitutes its legal, valid and binding obligations, enforceable in accordance with its terms;
(d) no Event of Default is continuing or will arise as a result of the drawdown;
(e) the loan is wholly or predominantly for business purposes and is an exempt agreement (article 60C FSMA RAO);
(f) no litigation, arbitration or administrative proceedings are current or, to its knowledge, threatened which might reasonably be expected to have a material adverse effect;
(g) no misrepresentation has been made within the meaning of the Misrepresentation Act 1967.
Breach of any warranty shall constitute an Event of Default under clause 6.
Registration (Companies Act 2006, s.859A): The Borrower undertakes to execute all such documents and take all such steps as the Lender may require to register the security at Companies House within 21 days of creation (as required by s.859A Companies Act 2006) and, where applicable, at HM Land Registry.
Insolvency Act look-back: The parties confirm that this Agreement and any security granted under it are entered into in good faith, at arm's length and for proper business purposes, and are not intended as a transaction at an undervalue, preference or extortionate credit transaction within the meaning of sections 238-241 and 244 of the Insolvency Act 1986.
(a) guarantees to the Lender the due and punctual payment by the Borrower of all sums payable under this Agreement up to a maximum aggregate amount of £150,000.00;
(b) undertakes, as a separate and independent primary obligation, to pay to the Lender on demand any sum which the Borrower fails to pay on its due date;
(c) agrees that the guarantee is a continuing guarantee and shall not be discharged by any variation, extension of time, composition, compromise, release, invalidity or unenforceability of any obligation of the Borrower.
Independent Legal Advice: The Guarantor acknowledges having received (or having had the opportunity to receive) independent legal advice on the nature and effect of this guarantee before execution. The parties have regard to the principles in Royal Bank of Scotland v Etridge (No 2) [2002] 2 AC 773 concerning undue influence in guarantees given by individuals.
(a) Non-payment: failure by the Borrower to pay any sum due under this Agreement on the due date and such failure continues for 5 Business Days after written notice
(b) Breach of obligation: material breach by the Borrower of any covenant, representation or undertaking under this Agreement (not being a failure to pay), which is not remediable or which, if remediable, is not remedied within 14 days of written notice
(c) Insolvency: the Borrower suffers an Insolvency Event, including but not limited to the appointment of an administrator, liquidator, receiver or administrative receiver, the passing of a winding-up resolution, the making of a bankruptcy order, or the entry into a company voluntary arrangement or scheme of arrangement under Part 26/26A of the Companies Act 2006
(d) Cross-default: any other financial indebtedness of the Borrower in excess of £10,000 becomes due and payable prematurely, or is not paid when due
(f) Change of control: any change in the ownership or control of the Borrower (as defined in s.1124 Corporation Tax Act 2010) without the Lender's prior written consent
Acceleration at Lender's option: On the occurrence and during the continuance of an Event of Default, the Lender may by written notice to the Borrower: (i) cancel the facility; (ii) declare all sums outstanding under this Agreement to be immediately due and payable; and/or (iii) enforce any security granted under clause 6. Default interest shall accrue on any overdue sum at a rate of 4% per annum above the contractual interest rate (or above the Bank of England Base Rate where the loan is interest-free), from the due date until actual payment, both before and after judgment, compounding monthly.
Certified copy of board resolution authorising borrowing and execution; certified copies of the Borrower's articles of association and certificate of incorporation; specimen signatures of authorised signatories; evidence of satisfactory AML/KYC checks
In addition, the Lender shall have received evidence satisfactory to it of the Borrower's anti-money laundering and "know your customer" (AML/KYC) checks under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.
(a) within 180 days of the end of each financial year, a copy of its audited (or unaudited, where exemption from audit applies under s.477 Companies Act 2006) annual financial statements;
(b) within 60 days of the end of each financial half-year, management accounts;
(c) promptly, such other financial or other information as the Lender may reasonably request;
(d) immediate written notice of any Event of Default or any event which, with the giving of notice or lapse of time, would constitute an Event of Default;
(e) immediate written notice of any material litigation, arbitration or administrative proceedings which are current, threatened or pending.
(a) maintain a positive consolidated net worth at all times;
(b) ensure that its ratio of total financial indebtedness to EBITDA does not exceed such ratio as may be agreed in writing with the Lender;
(c) maintain an interest cover ratio of not less than 1.5:1, tested at each financial year end;
(d) not, without the Lender's prior written consent, (i) incur any further financial indebtedness ranking pari passu with or in priority to the loan, (ii) grant any security over its assets, (iii) dispose of any material assets outside the ordinary course of business, or (iv) declare or pay any dividend while any sum is in arrears.
The Borrower shall promptly provide such "know your customer" information and documentation as the Lender may require. Breach of this clause constitutes a material Event of Default.
Assignment: The Lender may assign or transfer any of its rights under this Agreement to any person. The Borrower may not assign or transfer any of its rights or obligations without the Lender's prior written consent.
Jurisdiction: Each party irrevocably agrees that the courts of England and Wales shall have exclusive jurisdiction to settle any dispute or claim (including non-contractual disputes or claims) arising out of or in connection with this Agreement.
Entire agreement: This Agreement constitutes the entire agreement between the parties in relation to its subject matter and supersedes all prior agreements and understandings.
Variation: No variation shall be effective unless in writing and signed by or on behalf of both parties.
Severability: If any provision is held to be invalid, illegal or unenforceable, the remainder shall continue in full force.
Third-party rights: Save for any Guarantor expressly granted rights under clause 6A, a person who is not a party to this Agreement has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce any term.
Notices: Any notice shall be in writing and sent to the address set out above (or such other address as notified) by hand, first-class post or email.
Counterparts: This Agreement may be executed in counterparts, each of which when executed shall be an original, but all of which together constitute one agreement.
Regulatory note: The parties confirm that this loan is an exempt agreement under FSMA RAO art.60C and is not a regulated credit agreement under the Consumer Credit Act 1974 because it is made wholly or predominantly for the purposes of a business carried on by the Borrower and/or the Principal exceeds £25,000.
What Is a Business Loan Agreement?
A business loan agreement is a legally binding contract between a lender and a borrower (a company or sole trader) that documents the amount borrowed, the interest rate, the repayment schedule, and any security or guarantees. It creates enforceable obligations on both sides.
Written loan agreements are essential for tax purposes. HMRC may question whether a payment between connected parties is a genuine loan or a disguised dividend or gift. A properly documented loan agreement with commercial terms provides evidence of a bona fide transaction.
UK business loans can be secured (backed by assets such as property or equipment) or unsecured. The British agreement should clearly state whether security is provided, what happens on default, and how disputes are resolved under English law.
What's Covered in This Template
Our business loan agreement template covers all the key commercial and legal terms:
Parties
Full details of the lender and borrower, including company registration numbers where applicable.
Loan Amount
The principal sum being lent.
Purpose
What the loan will be used for, if restricted.
Interest Rate
The annual interest rate and how interest is calculated and applied.
Repayment Schedule
Monthly, quarterly, or lump-sum repayment terms with specific dates.
Term
The duration of the loan and maturity date.
Security
Any collateral or charges over assets securing the loan.
Default Provisions
What constitutes a default and the remedies available to the lender.
Early Repayment
Whether the borrower can repay early and any associated fees.
Governing Law
Confirmation that the agreement is governed by the laws of England and Wales.
How to Create a Business Loan Agreement
Follow these steps to document a business loan properly:
- 1
Agree the Key Terms
Settle on the loan amount, interest rate, repayment schedule, term, and any security before drafting the agreement.
- 2
Identify the Parties
Record full legal names, addresses, and company registration numbers. If the borrower is a limited company, the agreement is with the company, not the individual directors.
- 3
Document Interest and Repayment
Specify the interest rate, when interest accrues, and the repayment schedule. Be clear about whether repayments cover interest only, capital only, or both.
- 4
Address Default and Security
Define what happens if the borrower misses payments or breaches a term. If the loan is secured, describe the collateral and the process for enforcement.
- 5
Sign and Date
Both parties sign the agreement. If the borrower is a company, an authorised director should sign on behalf of the company, and the company seal may be applied if required by the articles.
Legal Considerations
Business loans in England and Wales are governed by contract law, company law, and tax legislation.
This template is for informational purposes only and does not constitute legal advice. Consult a qualified solicitor for advice specific to your situation.
Reviewed for England & Wales law
Consumer Credit Act
If the UK loan is to an individual (not a company) and falls within the scope of the Consumer Credit Act 1974, the British lender may need to be authorised by the Financial Conduct Authority. Loans between genuine business parties or director loans to their own companies in England and Wales are generally exempt, but the boundaries should be checked.
Tax Implications
Interest paid by a UK company is usually a deductible expense. However, HMRC may challenge arrangements between connected British parties (e.g. director loans) if the terms are not at arm's length under English tax law. The loan should carry a commercial interest rate and be documented properly.
Company Law
Under the UK Companies Act 2006, loans to British directors require disclosure in the company's accounts and may require shareholder approval depending on the amount. Director loan accounts in England and Wales must be carefully managed to avoid section 455 tax charges on overdrawn accounts.
Security and Charges
If the UK loan is secured by a charge over the company's assets, the charge must be registered at UK Companies House within 21 days under Part 25 of the Companies Act 2006. Failure to register may mean the charge is void under English law against a liquidator or other creditors.
Frequently Asked Questions
Document Your Business Loan Properly
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