Deed Of Loan Agreement: What Businesses Should Know Before Lending Or Borrowing

Lending money (or taking on a loan) is a normal part of running a business in Australia. You might be helping a related business with cash flow, funding a new project, bringing forward growth plans, or accepting investment-style funding from a director, shareholder, or another company.

But here’s the tricky part: when money changes hands without a clear legal framework, things can unravel quickly. Relationships can sour, repayment expectations get blurry, and what felt like a “simple loan” turns into a costly dispute.

That’s where a deed of loan agreement comes in. It’s a practical way to document exactly what’s been agreed, so both sides can move forward with confidence.

Below, we’ll walk you through what a deed of loan agreement is, when it makes sense for small businesses, what to include, how it interacts with security and enforcement, and the common mistakes we see when loans are documented informally.

What Is A Deed Of Loan Agreement (And How Is It Different From A Loan Agreement)?

A deed of loan agreement is a written legal document that sets out the terms on which one party (the lender) lends money to another party (the borrower), and it is executed as a deed rather than as a standard contract.

In practice, a deed of loan agreement will cover similar commercial points as a normal loan agreement, including:

• how much is being lent
• when and how it must be repaid
• whether interest applies
• what happens if the borrower defaults
• what rights the lender has to enforce repayment

Why Use A “Deed” Instead Of A Standard Contract?

For many businesses, the key reason is that a deed can help with enforceability in situations where a standard contract might be questioned (for example, if there is an issue about “consideration”, which is a technical contract requirement).

A deed is also commonly used where:

• the parties want the document to carry additional legal formality
• the arrangement is long-term or higher risk
• the lender wants a clearer written record of rights and remedies if repayment doesn’t happen

That said, a deed isn’t automatically “better” than a contract in every case. The best choice depends on who the parties are, how the funds are being used, and how you want enforcement and documentation to work. In all cases, the document still needs to be properly drafted and executed to be reliable.

Who Typically Uses A Deed Of Loan Agreement In Small Business?

We commonly see a deed of loan agreement used in scenarios like:

• Director loans (a director lends money to their company, or vice versa)
• Intercompany funding (one company lends to another within a group structure)
• Business-to-business lending (short-term funding between two businesses)
• Bridging finance (covering cash flow while waiting for invoices, settlements, or funding)
• Asset purchases (funding equipment or stock purchases with structured repayments)

If your loan is connected to directors or shareholders, it’s also worth understanding how a director loan works in practice. There can also be governance, accounting and tax considerations (for example, potential Division 7A issues in some circumstances), so it’s a good idea to speak with your accountant or tax adviser as well as getting the legal documentation right.

When Should Your Business Use A Deed Of Loan Agreement?

Not every loan needs to be documented as a deed, but if you’re dealing with meaningful amounts of money (or if the relationship is commercially sensitive), it’s usually a good idea to have something properly drafted.

As a general guide, a deed of loan agreement is worth considering if any of the following are true:

• The loan is not being repaid immediately (for example, repayment over months or years).
• Interest is being charged, or there are fees for late payment.
• The lender is relying on the repayment to meet its own obligations.
• The borrower’s financial position is uncertain, or the loan is higher risk.
• You want clear default and enforcement rights (without relying on “handshake expectations”).
• The loan is connected to ownership or governance (e.g. founders, shareholders, related entities).

A Quick Reality Check: “It’s Just Between Us” Can Still Get Messy

Many small business loans happen between people who trust each other. That trust is valuable, but it’s not a substitute for clarity.

A deed of loan agreement isn’t about expecting the worst. It’s about making sure that if something unexpected happens (cash flow issues, a dispute between directors, a restructure, or a business sale), everyone can point to the same document and know what the deal is.

Key Terms To Include In A Deed Of Loan Agreement

A strong deed of loan agreement is more than “Borrower agrees to repay Lender $X.” It should be specific enough that a court (or a debt recovery process) can clearly interpret the parties’ rights and obligations.

Here are the key clauses and commercial terms we typically recommend addressing.

1. Parties, Capacity And Authority

Start with the basics, but do it properly:

• Correct legal names (individuals, companies, trustees)
• ABN/ACN where relevant
• Who has authority to sign (especially if a company is borrowing or lending)

If a company is signing, you’ll usually want execution to be handled correctly. For many companies this means signing under section 127 of the Corporations Act (where applicable), so the lender has confidence the document is validly executed.

2. Loan Amount And Drawdown Mechanics

Be clear about:

• The principal amount being lent
• Whether the loan is advanced in one lump sum or multiple drawdowns
• How drawdowns are requested and approved
• Whether there’s a maximum facility amount

This is especially important where the deed is intended to support ongoing funding, not just a one-off transfer.

3. Purpose Of The Loan (And Any Restrictions)

Sometimes the lender only wants funds used for a specific purpose (e.g. stock purchase, fitout, marketing). You can include a purpose clause and restrictions on use.

From the borrower’s perspective, be careful about restrictive purpose clauses if you need flexibility.

4. Interest, Default Interest And Fees

If interest applies, spell out:

• The interest rate (fixed or variable)
• How interest is calculated (daily, monthly, etc.)
• When it’s payable
• Whether interest capitalises (adds to the principal)
• Default interest (extra interest if repayment is late)

Even if you’re not charging interest, it’s worth stating clearly that the loan is interest-free so there’s no ambiguity later.

5. Repayment Structure (This Is Where Disputes Often Start)

Repayment clauses should cover:

• Repayment date (or “on demand” loans, if appropriate)
• Instalment schedule (weekly/monthly repayments)
• How repayments are applied (interest first, then principal, or vice versa)
• Whether early repayment is allowed (and whether there are any penalties)

Tip: If you want predictable cash flow, instalment schedules are usually better than vague repayment obligations.

6. Events Of Default And Enforcement Rights

This section outlines what counts as a “default” and what the lender can do next. Common defaults include:

• failure to pay on time
• insolvency events
• breach of key obligations (such as misuse of funds)
• misleading statements made when the loan was entered into

Enforcement rights might include:

• the right to demand immediate repayment of all outstanding amounts
• the right to charge default interest
• the right to enforce any security (if the loan is secured)

7. Representations, Warranties And Ongoing Undertakings

These are promises about the borrower’s position and conduct. Depending on the deal, the lender might ask the borrower to promise that:

• they have authority to enter into the deed
• they’re not already in default under another material finance document
• they will maintain insurance or licences
• they will provide financial information on request

These aren’t “boilerplate” in a small business context. They can materially affect risk and negotiation power if things go wrong.

Secured vs Unsecured Loans: Do You Need Security (And A PPSR Registration)?

One of the biggest decisions is whether the loan is:

• Unsecured (the lender relies on the borrower’s promise to repay), or
• Secured (the lender has security over assets, which can be enforced if the borrower defaults)

Common Types Of Security In Business Lending

Security can take different forms, including:

• a charge/security interest over business assets (equipment, inventory, receivables)
• a guarantee from a director or related entity
• security over specific assets (like a vehicle or plant and equipment)

If you are taking security over personal property (which can include business assets), the Personal Property Securities Register (PPSR) is often part of the picture. A registration can help protect the lender’s priority if the borrower becomes insolvent or if there are competing secured creditors.

On the lender side, it’s worth understanding how the PPSR works and why a registration can be a key risk-management step (especially for secured loans).

What Is A General Security Agreement (GSA) And When Is It Used?

A lender may require the borrower to enter into a General Security Agreement (GSA). This is a type of security document that can provide security over a broad range of the borrower’s present and future personal property.

In many situations, the deed of loan agreement sets out the commercial lending terms, while the GSA (and PPSR registration) helps ensure the lender has enforceable security.

If you’re borrowing, it’s important to understand that granting a GSA can significantly restrict what you can do with assets (for example, selling equipment, refinancing, or granting security to another lender).

Practical Risks And Common Mistakes We See With Business Loans

Small business loans often go wrong for simple reasons: the arrangement is informal, assumptions aren’t aligned, and no one wants to “make it awkward” by getting the paperwork right.

Here are some of the most common issues we see, and how a properly drafted deed of loan agreement can help avoid them.

1. No Clear Repayment Trigger

We often see loans described as “repay when you can.” That can work until the lender needs the money back, the borrower disagrees about timing, or a director/shareholder relationship changes.

A deed should clearly state whether the loan is:

• repayable on demand
• repayable on a fixed date
• repayable by instalments

2. Interest Is Mentioned Informally (But Not Documented)

Sometimes parties agree verbally that interest will be paid, but they never document the rate, calculation method, or when it accrues. This creates avoidable disputes.

If interest applies, document it. If it doesn’t, document that too.

3. Blurred Lines Between Loans And Equity

In founder-led businesses, money can be injected casually. But there’s a big difference between:

• a loan (repayable debt), and
• equity (ownership / shares, generally not “repayable” in the same way)

If the funding is coming from a shareholder or someone who may later want equity, consider whether you actually need a loan deed, a convertible note, or a different funding structure.

If there are multiple owners, it’s also worth ensuring your governance documents match what you’re doing. For example, a Shareholders Agreement can help clarify how funding decisions are made, what happens if someone wants their money back, and how disputes are managed.

4. No Security (Or Security That Isn’t Properly Recorded)

A lender might assume they’re “secured” because the borrower agreed that assets can be taken if repayment fails. But unless the security is properly documented and (where relevant) registered, the lender’s position can be weaker than expected.

On the borrower side, signing security documents without understanding the impact can restrict your ability to operate and raise finance later.

5. Incorrect Execution

If the document isn’t executed correctly, enforceability can be harder and disputes become more expensive. Execution issues commonly happen when:

• company signatories are incorrect
• signatures are missing or undated
• documents are signed in the wrong capacity (e.g. someone signs personally when it should be the company)

It’s worth taking the time to ensure the deed is signed properly from day one.

Key Takeaways

• A deed of loan agreement sets out the terms of a business loan in a formal, enforceable way, reducing the risk of misunderstandings and disputes (as long as it’s properly drafted and executed).
• For many small businesses, deeds are especially useful where the loan is significant, long-term, connected to directors/shareholders, or where clearer documentation of enforcement rights may be needed.
• Your deed should clearly cover the loan amount, interest (if any), repayment schedule, events of default, and enforcement rights.
• If the loan is secured, you may also need supporting security documents (such as a General Security Agreement) and to consider PPSR registration to protect the lender’s position.
• Common pitfalls include unclear repayment triggers, informal interest arrangements, blurred debt vs equity expectations, and incorrect execution.

If you’d like help drafting or reviewing a deed of loan agreement for your business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.