Loan Agreement - Company Financing

A Loan Agreement is an agreement between a Lender (eg: a bank) and a Borrower, and sets out the terms and conditions under which the Lender is prepared to lend money.

While every Loan Agreement is different, there are certain issues they usually cover including, but not limited to:

1. the rights and obligations of the parties;
2. the amount being borrowed, the repayment schedule and interest payable (if any); and
3. what happens if the Borrower defaults (i.e. fails to repay the loan).

Note: This Loan Agreement:

1. does not contain a provision granting the Lender security over the Borrower’s property to secure the debt.
2. is not a credit contract to which the National Consumer Credit Protection Act 2009 (Cth) applies.

You should obtain legal advice if you do not understand any part of the Loan Agreement.

Checklist is not available for this document.

Sample is not available for this document.

Lender Details
• What is a Loan Agreement?
• Does the National Credit Code apply?
• Is this Loan Agreement suitable for inter-company loans?
• Is this Loan Agreement suitable for 'at call' loans?
• How do you determine whether an interest is a debt interest under the debt/equity rules?
• Is this a Division 7A Loan Agreement?
• Does this Loan Agreement contain a Security Provision?
• Who is a Lender?
• Is this Lender a Company or Human?
• Is this Lender a Trustee of a Trust?
• If there are 2 or more Lenders how much is owed to them?
Borrower Details
• What is a Loan Agreement?
• Does the National Credit Code apply?
• Is this Loan Agreement suitable for inter-company loans?
• Is this Loan Agreement suitable for 'at call' loans?
• How do you determine whether an interest is a debt interest under the debt/equity rules?
• Is this a Division 7A Loan Agreement?
• Who is a Borrower?
• Liability of Borrowers
• Is this Borrower a Company or Human?
• Is this Borrower a Trustee of a Trust?
• Hints for the Borrower
Loan Details
• The Loan Amount
• Can I lend more money?
• Debt/Equity rules
Interest Rate
• Charging interest?
• Debt/Equity rules
Benchmark Interest Rate
• Debt/Equity rules
• Benchmark Interest Rate definition
• What is the current Benchmark Interest Rate?
Fixed Interest Rate
• Debt/Equity rules
Length of Loan
• Length of Loan
• When does this Loan Agreement begin?
• Debt/Equity rules
Term of the Agreement
• Length of Loan
• When does this Loan Agreement begin?
• Can I lend more money?
• Debt/Equity rules
Instalments
• Instalments
• Debt/Equity rules
How instalments paid
• Instalments
Instalment Details
• Instalments
Guarantor
• What is a guarantee?
• What is an indemnity?
• Why is a guarantees and indemnity clause important?
Guarantor Details
• What is a guarantee?
• What is an indemnity?
• Why is a guarantees and indemnity clause important?
Jurisdiction
• Which State or Territory?

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Lender Details

• What is a Loan Agreement?

  A Loan Agreement is an agreement between a Lender and a Borrower, and sets out the terms and conditions under which the Lender is prepared to lend money.

  This hint is provided by Law Central Legal.

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• Does the National Credit Code apply?

  No. Generally, the National Credit Code does not apply unless:

  • the Borrower is a natural person or a strata corporation;
  • the loan is wholly or predominantly for personal, domestic or household purposes or to purchase, renovate or improve residential property for investment purposes;
  • a charge is or may be made for providing the loan; and
  • the Lender is in the business of providing credit (eg: a bank), or providing credit is part of your business.

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• Is this Loan Agreement suitable for inter-company loans?

  Yes. Inter-company loans are loans made from one company to a related company, usually to move cash:

  • to a related company that would otherwise experience a cash shortfall;
  • into a related company where the funds are aggregated for investment purposes; or
  • within related companies that use a common currency, rather than sending in funds from a foreign location that would be subject to exchange rate fluctuations.

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• Is this Loan Agreement suitable for 'at call' loans?

  Yes. An "at call" loan is a loan that does not have a fixed term and is repayable on demand.
  
  "At call" loans may be classified as giving rise to either debt or equity interests in the company for tax purposes under the debt/equity rules.
  

  If you require further information about "at call" loans, please seek legal and/or tax advice.

  
  

  This hint is provided by Law Central Legal.

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• How do you determine whether an interest is a debt interest under the debt/equity rules?

  The Debt Equity rules are contained in Division 974 of the Income Tax Assessment Act 1997 (Cth).
  
  If you require further information about Debt Equity rules, please seek legal and/or tax advice.
  

  This hint is provided by Law Central Legal.

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• Is this a Division 7A Loan Agreement?

  No. A Division 7A loan agreement is required when your company lends you money.
  
  If you require a Division 7A Loan agreement please click the following link: Div 7A Loan Agreement

  This hint is provided by Law Central Legal.

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• Does this Loan Agreement contain a Security Provision?

  No. This Loan Agreement does not contain any provision creating a charge or security interest (eg: a provision enabling the Lender to register a mortgage or security interest over the Borrower's property to protect the Lender’s interests).
  
  If the Borrower fails to repay the loan, the Lender will not be able to:

  • place a caveat or mortgage over the Borrower's land; or
  • sell any of the Borrower’s property to satisfy the debt.

  The only recourse the Lender may have is to commence legal proceedings against the Borrower which can be time consuming and costly.

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• Who is a Lender?

  The Lender is the person that is lending money to the Borrower.
  
  For example, if Jayson and Kerry lend money to George then Jayson and Kerry are the Lenders.
  

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• Is this Lender a Company or Human?

  If the Lender is a company, enter the company's full legal name, Australian Company Number (ACN) and address. The address for the company can be any address - it does not have to be the company's registered office address.
  
  If the Lender is an individual, enter the individual's full name and address.

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• Is this Lender a Trustee of a Trust?

  1. Where the Trustee is a Single Human
  Joe Sam Bloggs is the trustee of the "Bloggs Family Trust". You should therefore enter the details in the following way:
  
  Type of Lender: select "individual"
  First Name: Joe
  Second Name: Sam
  Last Name: Bloggs
  
  Capacity: type "as trustee for the Bloggs Family Trust"
  
  2. Company is a Trustee
  Black Pty Ltd (ACN 111 222 333) is trustee of the Blue Family Trust. You therefore enter the details in the following way:
  
  Type of Lender: select "Company"
  Company Name: Black Pty Ltd
  ACN: 111 222 333
  
  Capacity: type "as trustee for the Blue Family Trust"
  
  3. More Than One Trustee
  A trust can have more than one trustee. If Sam, Luke and ABC Pty Ltd are all trustees for the Blueberry Family Trust:

  • press "add" and insert all of Sam's details in accordance with paragraph 1 above;
  • press "add" and insert all of Luke's details in accordance with paragraph 1 above; and
  • press "add" and insert all details of ABC Pty Ltd in accordance with paragraph 2 above.

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• If there are 2 or more Lenders how much is owed to them?

  This Loan Agreement is between the Lenders and Borrower(s). It is not between each of the Lenders.
  
  This Loan Agreement only documents that the Borrower(s) owes money to the Lenders. How the Lenders divide the repayments between themselves does not form part of this Loan Agreement.

  This hint is provided by Law Central Legal.

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Borrower Details

• What is a Loan Agreement?

  A Loan Agreement is an agreement between a Lender and a Borrower, and sets out the terms and conditions under which the Lender is prepared to lend money.

  This hint is provided by Law Central Legal.

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• Does the National Credit Code apply?

  No. Generally, the National Credit Code does not apply unless:

  • the Borrower is a natural person or a strata corporation;
  • the loan is wholly or predominantly for personal, domestic or household purposes or to purchase, renovate or improve residential property for investment purposes;
  • a charge is or may be made for providing the loan; and
  • the Lender is in the business of providing credit (eg: a bank), or providing credit is part of your business.

  This hint is provided by Law Central Legal.

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• Is this Loan Agreement suitable for inter-company loans?

  Yes. Inter-company loans are loans made from one company to a related company, usually to move cash:

  • to a related company that would otherwise experience a cash shortfall;
  • into a related company where the funds are aggregated for investment purposes; or
  • within related companies that use a common currency, rather than sending in funds from a foreign location that would be subject to exchange rate fluctuations.

  This hint is provided by Law Central Legal.

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• Is this Loan Agreement suitable for 'at call' loans?

  Yes. An "at call" loan is a loan that does not have a fixed term and is repayable on demand.
  
  "At call" loans may be classified as giving rise to either debt or equity interests in the company for tax purposes under the debt/equity rules.
  

  If you require further information about "at call" loans, please seek legal and/or tax advice.

  This hint is provided by Law Central Legal.

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• How do you determine whether an interest is a debt interest under the debt/equity rules?

  The Debt Equity rules are contained in Division 974 of the Income Tax Assessment Act 1997 (Cth).
  
  If you require further information about Debt Equity rules, please seek legal and/or tax advice.
  

  This hint is provided by Law Central Legal.

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• Is this a Division 7A Loan Agreement?

  No. A Division 7A loan agreement is required when your company lends you money.
  
  If you require a Division 7A Loan agreement please click the following link: Div 7A Loan Agreement

  This hint is provided by Law Central Legal.

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• Who is a Borrower?

  The Borrower is the person or persons who are borrowing money from the Lender.
  
  For example, if Joe Brown wishes to lend money to Bill Blue and Jane Green then Bill Blue and Jane Green are the Borrowers.

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• Liability of Borrowers

  All Borrowers are responsible for repaying all the money lent to the Lender.
  
  For example, if John, Bill and George borrowed money from Tony and Bill does not pay his share of the loan then Tony can demand that John and George pay back Bill's share of the money.
  
  If you are a Borrower it may be better to have individual agreements with the Lender.
  

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• Is this Borrower a Company or Human?

  If the Borrower is a company, enter the company's full legal name, Australian Company Number (ACN) and address. The address for the company can be any address - it does not have to be the company's registered office address.
  
  If the Borrower is an individual, enter the individual's full name and address.

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• Is this Borrower a Trustee of a Trust?

  1. Where the Trustee is a Single Human
  Joe Sam Bloggs is the trustee of the "Bloggs Family Trust". You should therefore enter the details in the following way:
  
  Type of Borrower: select "individual"
  
  First Name: Joe
  Second Name: Sam
  Last Name: Bloggs
  
  Capacity: type "as trustee for the Bloggs Family Trust"
  
  2. Company is a Trustee
  
  Black Pty Ltd (ACN 111 222 333) is trustee of the Blue Family Trust. You therefore enter the details in the following way:
  
  Type of Borrower: select "Company"
  Company Name: Black Pty Ltd
  ACN: 111 222 333
  
  Capacity: type "as trustee for the Blue Family Trust"
  
  3. More Than One Trustee
  
  A trust can have more than one trustee. If Sam, Luke and ABC Pty Ltd are all trustees for the Blueberry Family Trust:

  • press "add" and insert all of Sam's details in accordance with paragraph 1 above;
  • press "add" and insert all of Luke's details in accordance with paragraph 1 above; and
  • press "add" and insert all details of ABC Pty Ltd in accordance with paragraph 2 above.
  
  

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• Hints for the Borrower

  The Borrower(s) should ensure that they understand the nature of the Loan Agreement and their obligations to repay any monies lent.
  
  In this regards, the Borrower should seek independent legal advice with respect to the terms of the Loan Agreement.
  

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Loan Details

• The Loan Amount

  This is the initial amount of money to be lent.
  
  If you are unsure of how much money is to be lent, just enter 1.00 (the dollar sign is already in the document). Additional money lent automatically forms part of this loan.
  
  If you know the initial amount of money to be lent, enter the amount. For example, if you are lending $20,000.00 then you type in 20,000.00.

  This hint is provided by Law Central Legal.

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• Can I lend more money?

  More money can be lent to the Borrower. Any additional money should be confirmed in writing by the Lender and the Borrower.

  This hint is provided by Law Central Legal.

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• Debt/Equity rules

  The Debt Equity rules are contained in Division 974 of the Income Tax Assessment Act 1997 (Cth).
  
  If you require further information about Debt Equity rules, please seek legal and/or tax advice.
  

  This hint is provided by Law Central Legal.

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Interest Rate

• Charging interest?

  "Interest" is the charge to borrow and use the Lender's money. For example, the bank may charge you 6% interest per annum for using their money.
  
  No Interest
  
  If you do not wish to charge the Borrower any interest this is fine. Please click on "Fixed" rate on this page ad then insert the number "0" for the Interest Rate on the next page.
  
  Fixed Interest
  
  A fixed rate of interest is a rate of interest that does not change during the life of the loan. If you want the rate of interest to be fixed at 8% please type in "8" as the Interest Rate (the % sign is already in the document).
  
  Interest Rate Linked to the Benchmark Interest Rate
  
  You have the option to make the interest rate in the Loan Agreement equal to the Benchmark Interest Rate, or above or below the Benchmark Interest Rate referred to in the Loan Agreement. The Benchmark Interest Rate is defined by subsection 109N(2) of the Income Tax Assessment Act 1936 (Cth).
  
  Debt/Equity
  
  The Debt Equity rules are contained in Division 974 of the Income Tax Assessment Act 1997 (Cth).
  
  If you require further information about Debt Equity rules, please seek legal and/or tax advice.
  

  If you are unsure as to an appropriate interest rate, you should seek legal advice.

  
  

  This hint is provided by Law Central Legal.

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• Debt/Equity rules

  The Debt Equity rules are contained in Division 974 of the Income Tax Assessment Act 1997 (Cth).
  
  If you require further information about Debt Equity rules, please seek legal and/or tax advice.
  

  This hint is provided by Law Central Legal.

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Benchmark Interest Rate

• Debt/Equity rules

  The Debt Equity rules are contained in Division 974 of the Income Tax Assessment Act 1997 (Cth).
  
  If you require further information about Debt Equity rules, please seek legal and/or tax advice.

  This hint is provided by Law Central Legal.

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• Benchmark Interest Rate definition

  Section 109N(2) Income Tax Assessment Act 1936 (Cth)
  
  Benchmark interest rate
  
  (2) The benchmark interest rate for the year of income is the Indicator Lending Rates-Bank variable housing loans interest rate last published by the Reserve Bank of Australia before the start of the year of income. However, the benchmark interest rate is the rate worked out under the regulations, if they provide for working it out.
  
  Source:Comlaw.gov.au
  
  Current as at 19/03/2015

  This hint is provided by Law Central Legal.

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• What is the current Benchmark Interest Rate?

  If you want to know the current Benchmark Interest Rate, look at either the Reserve Bank of Australia website or the ATO website.

  This hint is provided by Law Central Legal.

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Fixed Interest Rate

• Debt/Equity rules

  The Debt Equity rules are contained in Division 974 of the Income Tax Assessment Act 1997 (Cth).
  
  If you require further information about Debt Equity rules, please seek legal and/or tax advice.

  This hint is provided by Law Central Legal.

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Length of Loan

• Length of Loan

  A loan can be for a specified period or payable on demand by the Lender.
  
  Payable On Demand
  
  If a loan is "payable on demand", there is no fixed time in which the money must be repaid to the Lender. The Lender can, at any time, ask the Borrower to pay all money owing under the Loan Agreement. This means, the Lender can ask the Borrower to pay back all or part of the loan amount immediately.
  
  Fixed Term
  
  If the loan is for a fixed period you will need to state how long it is for. For example, if the length of the loan is 2 years, then the Borrower must pay the Lender all monies lent that have not been paid back 2 years after the Loan Agreement was signed.
  
  Can Term of the Loan Agreement Be Changed?
  
  Under the Loan Agreement, the Borrower and Lender can agree in writing to extend the term of the loan.
  

  This hint is provided by Law Central Legal.

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• When does this Loan Agreement begin?

  The Loan Agreement begins from the date that it is signed. The date is hand written on the actual Loan Agreement at the time you sign it.

  This hint is provided by Law Central Legal.

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• Debt/Equity rules

  The Debt Equity rules are contained in Division 974 of the Income Tax Assessment Act 1997 (Cth).
  
  If you require further information about Debt Equity rules, please seek legal and/or tax advice.

  This hint is provided by Law Central Legal.

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Term of the Agreement

• Length of Loan

  A loan can be for a specified period or payable on demand by the Lender.
  
  Payable On Demand
  
  If a loan is "payable on demand", there is no fixed time in which the money must be repaid to the Lender. The Lender can, at any time, ask the Borrower to pay all money owing under the Loan Agreement. This means, the Lender can ask the Borrower to pay back all or part of the loan amount immediately.
  
  Fixed Term
  
  If the loan is for a fixed period you will need to state how long it is for. For example, if the length of the loan is 2 years, then the Borrower must pay the Lender all monies lent that have not been paid back 2 years after the Loan Agreement was signed.
  
  Can Term of the Loan Agreement Be Changed?
  
  Under the Loan Agreement, the Borrower and Lender can agree in writing to extend the term of the loan.
  

  This hint is provided by Law Central Legal.

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• When does this Loan Agreement begin?

  The Loan Agreement begins from the date that it is signed. The date is hand written on the actual Loan Agreement at the time you sign it.

  This hint is provided by Law Central Legal.

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• Can I lend more money?

  More money can be lent to the Borrower. Any additional money should be confirmed in writing by the Lender and the Borrower.

  This hint is provided by Law Central Legal.

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• Debt/Equity rules

  The Debt Equity rules are contained in Division 974 of the Income Tax Assessment Act 1997 (Cth).
  
  If you require further information about Debt Equity rules, please seek legal and/or tax advice.

  This hint is provided by Law Central Legal.

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Instalments

• Instalments

  The Loan Agreement provides you with the option of having the loan amount paid in instalments.
  
  Fix Instalments
  
  The instalments can be a set amount paid regularly on a specific date.
  
  For example, an instalment could be $2,000 per month with the first instalment payable on 1 July 2016 and monthly thereafter.
  
  Repayment Schedule
  
  Alternatively, the instalments could be payable in accordance with a repayment schedule which you can attach to the back of the Loan Agreement. The repayment schedule should set out as a minimum the instalment amounts, when they are payable and their frequency.
  
  The repayment schedule should be initialled by all parties and attached to each copy of the Loan Agreement. Please click here to see an example of a repayment schedule.
  

  This hint is provided by Law Central Legal.

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• Debt/Equity rules

  The Debt Equity rules are contained in Division 974 of the Income Tax Assessment Act 1997 (Cth).
  
  If you require further information about Debt Equity rules, please seek legal and/or tax advice.

  This hint is provided by Law Central Legal.

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How instalments paid

• Instalments

  The Loan Agreement provides you with the option of having the loan amount paid in instalments.
  
  Fix Instalments
  
  The instalments can be a set amount paid regularly on a specific date.
  
  For example, an instalment could be $2,000 per month with the first instalment payable on 1 July 2016 and monthly thereafter.
  
  Repayment Schedule
  
  Alternatively, the instalments could be payable in accordance with a repayment schedule which you can attach to the back of the Loan Agreement. The repayment schedule should set out as a minimum the instalment amounts, when they are payable and their frequency.
  
  The repayment schedule should be initialled by all parties and attached to each copy of the Loan Agreement. Please click here to see an example of a repayment schedule.
  
  

  This hint is provided by Law Central Legal.

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Instalment Details

• Instalments

  The Loan Agreement provides you with the option of having the loan amount paid in instalments.
  
  Fix Instalments
  
  The instalments can be a set amount paid regularly on a specific date.
  
  For example, an instalment could be $2,000 per month with the first instalment payable on 1 July 2016 and monthly thereafter.
  
  Repayment Schedule
  
  Alternatively, the instalments could be payable in accordance with a repayment schedule which you can attach to the back of the Loan Agreement. The repayment schedule should set out as a minimum the instalment amounts, when they are payable and their frequency.
  
  The repayment schedule should be initialled by all parties and attached to each copy of the Loan Agreement. Please click here to see an example of a repayment schedule.
  
  

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Guarantor

• What is a guarantee?

  A guarantee is a promise by a person (i.e. the Guarantor) to assume liability for an obligation owed by another person (i.e. the Borrower) in the event that the Borrower defaults in meeting its obligations under the Loan Agreement.

  This hint is provided by Law Central Legal.

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• What is an indemnity?

  An indemnity is a primary obligation on a party (i.e. the Guarantor) to cover loss and damage suffered by another (i.e. the Lender).

  This hint is provided by Law Central Legal.

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• Why is a guarantees and indemnity clause important?

  A guarantee and indemnity clause is a method of reducing risk. It is commonly used by lenders, landlords and suppliers as means of protecting themselves from the risk of default or non-payment.
  
  It is particularly important where the:

  • Borrower is a company; and/or
  • Lender has any doubts about the Borrower's ability to fulfil its obligations under the Loan Agreement.

  This hint is provided by Law Central Legal.

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Guarantor Details

• What is a guarantee?

  A guarantee is a promise by a person (i.e. the Guarantor) to assume liability for an obligation owed by another person (i.e. the Borrower) in the event that the Borrower defaults in meeting its obligations under the Loan Agreement.

  This hint is provided by Law Central Legal.

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• What is an indemnity?

  An indemnity is a primary obligation on a party (i.e. the Guarantor) to cover loss and damage suffered by another (i.e. the Lender).

  This hint is provided by Law Central Legal.

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• Why is a guarantees and indemnity clause important?

  A guarantee and indemnity clause is a method of reducing risk. It is commonly used by lenders, landlords and suppliers as means of protecting themselves from the risk of default or non-payment.
  
  It is particularly important where the:

  • Borrower is a company; and/or
  • Lender has any doubts about the Borrower's ability to fulfil its obligations under the Loan Agreement.

  This hint is provided by Law Central Legal.

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Jurisdiction

• Which State or Territory?

  Select the State or Territory in which the agreement is made.
  
  The selected State or Territory will determine which laws apply to the agreement.
  
  For example, if the Lender and Borrower reside in New South Wales, then New South Wales should be selected as the jurisdiction.
  
  If the Lenders and Borrowers reside in different States or Territories of Australia, only one jurisdiction can be selected. Generally you would put in the State or Territory where the Lender lives or works. If the Lender is overseas, then select the State or Territory where the Borrower lives.
  
  WHY DOES IT MATTER?
  It matters because different laws apply in each State and Territory.
  
  If the Lender lives in South Australia then the Borrower doesn’t want to have to sue the Borrower in New South Wales.

  This hint is provided by Law Central Legal.

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This document has been prepared by the law practice Law Central Legal

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