Loan Agreement Contract Template For Family Loans

Lending money to family can feel simple at the start, especially when everyone trusts each other. But if the money is going into your business, the details matter.

Maybe your parents are helping you buy equipment, your sibling is lending cash to cover a slow quarter, or you're borrowing from a friend to get a new venture off the ground. A written loan agreement helps everyone stay clear on whether the money is a loan, when it must be repaid, and what happens if things don't go to plan.

If you're searching for a loan agreement contract template, the goal isn't to make the arrangement feel cold or overly formal. It's to protect the relationship and your business by putting the key promises in writing.

Do You Need A Written Loan Agreement For A Family Loan?

Yes, if the money is being lent or borrowed for your business, you should put the loan terms in writing.

A handshake can work while everyone agrees. The problem is that business cash flow changes, memories fade, and family expectations can shift. Without a written agreement, you may struggle to prove the amount borrowed, the repayment date, whether interest applies, or whether the money was actually a gift.

A written agreement is especially useful where:

• The loan is for a company, partnership or sole trader business.
• The loan is more than a small amount.
• Repayments will happen over months or years.
• The lender wants security over business assets.
• The borrower may seek other funding later and needs clean records.
• There are other family members who may question the arrangement later.

For example, say Mike runs a cleaning business in Perth and borrows $40,000 from his aunt to buy a van and commercial equipment. They agree he'll repay $2,000 per month once the van is on the road. If that agreement is only in text messages, it may be unclear whether repayments start immediately, whether missed payments are allowed, and who owns the equipment if Mike falls behind.

A short, properly drafted loan agreement can solve those issues before they become personal.

Can You Use A Private Loan Agreement Template?

Yes, you can use a private loan agreement template as a starting point, but it should be tailored before you sign it.

Templates are useful because they remind you of the topics to discuss. However, family and friend loans often have details that a generic template doesn't handle well. For example, an interest free loan agreement needs different wording to an unsecured loan agreement or interest-bearing business loan, and a secured loan needs extra clauses about the asset being used as security.

A template may also miss the practical realities of your business. It might not say what happens if your cafe has a quiet winter, if a major client pays late, or if you want to repay the loan early once revenue improves.

Before relying on any template, check whether it deals with:

• Who the borrower is - you personally, your company, your trust or your partnership.
• Whether the lender is a family member, friend, related company or business partner.
• The exact loan amount and drawdown date.
• Repayment dates, amounts and method.
• Interest, fees and early repayment.
• Security, guarantees and what happens on default.
• Whether the document should be signed as an agreement or a deed.

If the borrower is a company, use the company's full legal name and ACN, not just the trading name. If you're a sole trader, your ABN may help identify the business, but you're usually borrowing personally unless another entity is named.

What Should A Family Loan Agreement Include?

Your family loan agreement should clearly set out the commercial deal, even if the relationship is personal.

Here is a practical fill-in outline you can use to plan the document. This isn't a finished legal document, and a lawyer should tailor it before it's used.

1. Parties: Write the lender's and borrower's full legal names, addresses, and ACN or ABN if relevant.
2. Background: Briefly explain why the loan is being made, such as buying equipment or funding working capital.
3. Loan Amount: State the total amount being lent and whether it will be paid in one amount or instalments.
4. Drawdown: Set out when and how the borrower can receive the funds.
5. Purpose: Say whether the money must only be used for a particular business purpose.
6. Repayments: Include repayment amounts, dates, bank details and whether repayments are weekly, monthly or on demand.
7. Interest: State whether interest applies, the rate, when it accrues, and when it's paid.
8. Early Repayment: Say whether the borrower can repay early without penalty.
9. Security: List any assets secured by the loan and any registration steps needed.
10. Default: Explain what counts as a default and what the lender can do after notice is given.
11. Records And Notices: Set out how notices are sent and what records each side should keep.
12. Governing Law: Choose the Australian state or territory law that applies.
13. Signing: Include the correct signing blocks for individuals, companies and witnesses if needed.

The more specific you are, the easier it's to avoid arguments later. For example, write $1,500 on the 15th day of each month rather than regular monthly repayments.

Should The Loan Be Interest Free Or Charge Interest?

It depends on what you've agreed, but the loan agreement should say clearly whether interest applies.

Many family loans are interest free. That's fine, as long as the document says so plainly. If you don't mention interest, the lender and borrower may later disagree about whether interest was expected or whether it starts after a missed payment.

If interest is charged, your agreement should state:

• The annual interest rate.
• Whether interest is fixed or variable.
• When interest starts accruing.
• Whether repayments cover interest first or principal first.
• Whether a higher default interest rate applies after missed repayments.

Say Priya runs a cafe in Brisbane and borrows $60,000 from her brother to fit out a second coffee cart. They agree there's no interest for the first 12 months, then 6% per year if the loan is still outstanding. Priya repays $2,500 per month from month 13. Their agreement should spell out how interest is calculated, what balance it applies to, and whether she can repay the whole amount early if the cart performs well.

If you're lending or borrowing through a company, including a shareholder loan, there may also be accounting and tax consequences for interest, forgiven debt or related-party loans. A lawyer can help with the contract, but you should speak with your accountant about tax treatment before signing.

Should You Secure The Loan Or Keep It Unsecured?

It depends on the lender's risk and the borrower's assets, but secured loans give the lender stronger rights if repayments aren't made.

An unsecured family loan relies mainly on the borrower's promise to repay. That may be enough for a small amount or a short repayment period. For larger loans, the lender may want security over assets, such as business equipment, vehicles, stock, or sometimes real property.

For business assets, security is often documented under a secured loan agreement or security agreement and registered on the Personal Property Securities Register under the Personal Property Securities Act 2009. Registration can be crucial because it helps show the lender's priority against other creditors if the business gets into financial trouble.

If real property is involved, security usually needs a mortgage or caveat process under state or territory land titles rules. That's more complex and should be handled carefully.

Security can also create issues for future funding. If you later apply for bank finance or equipment finance, the lender may ask whether any family member already has security over the business assets. An existing PPSR registration can affect what other lenders are willing to offer.

If the borrower is a company, a lender may also ask for a personal guarantee from a director. That means the director may be personally responsible if the company doesn't repay. Don't include a guarantee casually - it changes the risk significantly.

What Happens If The Borrower Misses A Repayment?

The agreement should say exactly what happens after a missed repayment, including any notice period and the lender's next steps.

Missed payments don't always mean the relationship has broken down. Sometimes a customer pays late or stock costs spike. A good loan agreement gives you a process so you don't have to make it up during a stressful moment.

A practical default clause may cover:

• Failure to make a repayment on time.
• Failure to use the money for the agreed purpose.
• Insolvency events, such as a company being unable to pay its debts when due.
• Misleading information given to the lender.
• Failure to maintain insurance over secured assets.
• Selling secured assets without consent.

The clause should then explain what the lender can do. Common options include giving a written notice, allowing a short time to fix the default, charging default interest, requiring immediate repayment of the full balance, or enforcing security.

For example, Mike's agreement says he must repay $2,000 on the first business day of each month. If he misses a payment, his aunt must give written notice and he has 10 business days to catch up. If he doesn't, the whole outstanding balance becomes due and default interest starts. That process gives both sides certainty and a chance to fix the issue before it escalates.

Keep records of payments, emails, notices and any agreed changes. If you later agree to pause repayments for two months, put that variation in writing and have both sides confirm it.

When Is A Deed Better Than A Loan Agreement?

A deed may be better where there's no clear exchange of value, the arrangement needs extra formality, or you want a longer limitation period to enforce the promise.

A standard loan agreement is usually a contract. For a contract to work properly, there generally needs to be consideration, meaning something of value passes between the parties. In a normal loan, the lender provides money and the borrower promises to repay, so that requirement is usually met.

A deed is a more formal legal document. It can be useful for family lending arrangements because it reduces arguments about whether the promise is binding. Deeds also often have a longer limitation period than simple contracts, although the exact period depends on the state or territory. In many Australian jurisdictions, a simple contract has a 6-year limitation period, while a deed may have up to 12 years. You should confirm the position for your state or territory before relying on it.

A deed may be worth considering where:

• The loan terms are being recorded after money has already been advanced.
• A family member is forgiving or restructuring an earlier debt.
• A guarantor is promising to support someone else's repayment obligations.
• The lender wants a more formal document because the amount is significant.
• There's a risk someone will later argue the money was a gift.

Deeds also have special signing requirements. For example, individuals often need a witness, and companies should sign in a way that complies with the Corporations Act 2001. If execution is done incorrectly, the document may be harder to rely on.

Key Takeaways

• A written loan agreement helps protect your business and your family relationship by making the repayment terms clear.
• A private or family loan agreement template can be a useful starting point, but it should be tailored to the borrower, lender, purpose, interest, security and default process.
• Interest free loans are allowed, but the agreement should say that clearly and explain what happens if payments are late.
• Security, PPSR registrations and guarantees can give the lender stronger rights, but they also change the borrower's risk and future financing options.
• A deed may be better where the arrangement needs extra formality, the money has already been advanced, or enforceability is a concern.
• If your company is borrowing from a family member, use the correct company name and ACN, and keep clean records for your accountant and future lenders.

If you'd like help with your family loan agreement, repayment terms, security clauses or deciding whether a deed is the better option, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.