Simple Loan Agreement in Australia: What to Include

Whether you’re injecting cash into your own company, funding a subsidiary, or lending to a trusted supplier or customer, a simple loan agreement is the safest way to set clear expectations and protect your business.

It doesn’t have to be complicated. In fact, a well-drafted “basic loan agreement” can be short, clear and tailored to your situation - and it can save you from disputes, tax headaches and enforcement issues down the track.

In this guide, we’ll unpack what a simple loan agreement is, when to use one, the key clauses it should include, how to decide between secured and unsecured loans, and the practical steps to put one in place properly in Australia.

What Is A Simple Loan Agreement?

A simple loan agreement is a contract that records the terms on which one party (the lender) provides money to another (the borrower) and how that money will be repaid. It sets out the amount, interest (if any), repayment schedule, default consequences and other essentials.

For small businesses, this might cover:

• Short-term cash flow support between related companies
• A director or shareholder lending money to the business
• Supplier or customer financing arrangements
• Intercompany loans within a group
• Bridge finance while you finalise a longer facility

Even if everyone trusts each other, documenting the deal in a clear Loan Agreement helps prevent misunderstandings and provides a legal basis to enforce repayment if something goes wrong.

Key Clauses Every Basic Loan Agreement Should Cover

Your agreement doesn’t need to be long, but it must be complete. Here are the core terms a small business loan agreement should include, in plain English.

1) Loan Amount And Purpose

State the principal amount and, if relevant, the purpose (e.g. working capital, equipment purchase, or consolidating debt). If the loan must be used only for certain purposes, say so.

2) Drawdown And Term

Explain when and how the loan funds will be advanced (single lump sum or multiple drawdowns), and define the overall loan term (start and maturity dates).

3) Interest And Fees

• Interest rate: fixed or variable, how it’s calculated (per annum), and whether it’s compounding.
• Default interest: a higher rate if payments are late (ensure it’s reasonable and not a penalty).
• Fees: e.g. establishment or early repayment fees (if any).

4) Repayments

Set out the repayment schedule (weekly, monthly, quarterly or on demand), the amount of each repayment, and acceptable payment methods.

5) Early Repayment

Clarify whether the borrower can repay early (in part or full), and whether any break costs or fees apply. Many small business loans allow early repayment without penalty to keep things simple.

6) Security (If Any)

Say whether the loan is secured or unsecured. If secured, outline the collateral (e.g. all present and after-acquired property under a General Security Agreement, or specific equipment). We cover security in more detail below.

7) Guarantees (If Any)

If you want personal or corporate guarantees, include the guarantor’s details and attach a guarantee schedule. This can be crucial for small companies with limited assets. It’s wise to consider the risks of personal guarantees on both sides of the deal.

8) Representations And Warranties

Include basic statements the borrower confirms are true, such as being duly incorporated, not insolvent, and having authority to enter the agreement.

9) Undertakings

These are ongoing promises - for example, to keep adequate insurance, not to dispose of secured property, and to provide financial information upon request.

10) Default Triggers

Spell out what counts as default (missed payments, insolvency, breach of undertakings) and what the lender can do (charge default interest, demand early repayment, enforce security).

11) Enforcement And Costs

Allow the lender to recover reasonable enforcement costs. Keep this fair and proportionate.

12) Set-Off And Withholding

Address tax withholding (if applicable) and whether the borrower can set off other claims against repayments (most lenders exclude set-off).

13) Governing Law And Notices

Confirm the governing law (e.g. New South Wales, Victoria) and how notices are given (email, post) so everyone knows what’s legally binding and how to communicate.

14) Execution

Make sure the agreement is signed correctly, especially for companies. Company execution can be streamlined under section 127 of the Corporations Act, and electronic signing is commonly used.

Secured Vs Unsecured: How Will You Protect Repayment?

Your biggest strategic decision is whether the loan should be secured or unsecured. This choice affects your enforcement options and risk profile.

Unsecured Loan

Pros: Simple to document, faster to execute, and less admin (no PPSR registration).

Cons: If the borrower can’t pay, you rank alongside other unsecured creditors. Recovery may be limited.

Use it when: The amount is small, the borrower is low risk, or you already have strong levers (e.g. you control supply).

A straightforward unsecured loan can still be robust when documented in a plain-English unsecured Loan Agreement.

Secured Loan

Pros: Provides collateral you can enforce if the borrower defaults, improving your recovery prospects and bargaining power.

Cons: More paperwork and some ongoing admin (e.g. PPSR registration and renewals).

Use it when: The amount is material, the borrower is new or higher risk, or you simply want to reduce downside risk.

Common security options include:

• All-assets security via a General Security Agreement
• Specific security over equipment, stock or receivables
• Personal or corporate guarantees (often alongside asset security)

If you take security, register it promptly on the Personal Property Securities Register (PPSR). Proper registration is essential to “perfect” your security, protect priority and avoid losing out to other creditors. If you’re new to this, start with the basics of the PPSR and make a plan to register a security interest as soon as the loan is made.

Need a complete package? A secured Loan Agreement paired with a General Security Agreement is a common, efficient structure for small business lending.

Step-By-Step: Putting A Simple Loan Agreement In Place

Here’s a practical workflow you can follow, from handshake to signed contract and beyond.

Step 1: Align On The Commercials

Before you draft anything, get on the same page about the key terms: amount, purpose, interest rate, fees, repayment schedule, security, guarantees and timing.

Keep it simple. Short, clear terms are easier for everyone to follow.

Step 2: Choose Secured Or Unsecured

Decide whether to take security. If secured, choose the type of collateral (all-assets vs specific assets) and whether a guarantee is needed. This drives the documents you’ll use.

Step 3: Draft The Documents

Prepare the core agreement and any supporting documents. For most small business deals, that will be one of:

• Loan Agreement (unsecured by default)
• Secured Loan Agreement (often with a separate GSA)

If you’re lending within a group or by an owner to the company, ensure the terms align with your finance and tax strategy. For example, interest on a related-party loan should be set at a commercial rate and documented consistently with your accounts.

Step 4: Confirm Authority And Identify Signatories

Check that the borrower has authority to sign (e.g. board approval for a company). If relying on company execution, follow the rules under section 127. If a guarantor is involved, ensure they and the borrower each receive a copy and have a chance to obtain independent advice.

Step 5: Execute And Advance Funds

Once finalised and signed, exchange fully executed copies and advance the loan per the agreement (single lump sum or staged drawdowns). Keep a clear paper trail for the payment (date, amount, bank reference).

Step 6: Register Any Security

If the loan is secured, complete PPSR registrations promptly and correctly. Timing matters - for example, certain registrations must be lodged within strict windows to maintain priority. If in doubt, get help to register a security interest correctly from day one.

Step 7: Administer The Loan

Set reminders for repayment dates, interest resets (if variable), review of covenants, and PPSR renewal before the registration period ends. Good administration makes enforcement far less likely - and easier if you ever need it.

Step 8: Consider Variations Or Extensions

If circumstances change, document any amendments (like a revised repayment schedule) in a short deed of variation. Keep your records up to date and aligned with what’s happening in practice.

Related-Party Loans: Extra Tips

For loans between a director/shareholder and the company, keep the documentation formal and consistent with your accounts to avoid tax and governance issues. If you’re not sure how to structure a director loan, start with a primer on director loans and get tailored advice for your situation.

Common Mistakes To Avoid With Business Loans

We see the same avoidable issues create costly disputes. Here’s how to dodge them.

Relying On Verbal Agreements

Handshake deals are easy to misremember. Put it in writing with a clear, signed agreement - even if you’re lending to a trusted partner or within your own group.

Vague Or Missing Repayment Terms

“We’ll pay it back when we can” is a recipe for conflict. Spell out dates, amounts and what happens if payments are late.

Not Taking Security When You Should

If the loan is material, consider security. Failing to secure and register on the PPSR can mean losing priority to other creditors later - even if you lent first.

Using A One-Size-Fits-All Template

Templates can miss critical terms (like PPSR, guarantees, or default clauses) or include irrelevant overseas concepts. Keep it “simple” but Australian, accurate and tailored to the deal.

Forgetting Guarantees Or Getting Them Wrong

If the borrower has limited assets, a well-drafted guarantee may be vital. Understand how personal guarantees work and ensure they’re executed properly - courts scrutinise guarantees closely.

Sloppy Execution

Incorrect signing can undermine enforceability. Follow company signing rules under section 127 or obtain board minutes/authorities as needed.

Skipping The Supporting Documents

If the loan is secured, you’ll generally need a General Security Agreement and timely PPSR registration. If you skip these steps, the “security” might not protect you when it matters.

Not Aligning With Your Operations

Make sure the loan’s repayment schedule matches your cash flow cycles. If repayments are mismatched, you’re increasing the risk of default for no good reason.

What Legal Documents Might You Need?

Depending on whether your loan is secured or unsecured, consider the following documents.

• Loan Agreement: The core contract covering amount, interest, repayments, defaults and general terms (secured or unsecured).
• General Security Agreement (GSA): Grants security over all present and after-acquired property to back a secured loan.
• Specific Security Agreement: If you’re taking security over specific assets (e.g. equipment or receivables).
• Guarantee And Indemnity: Personal or corporate guarantee to add an extra layer of protection where the borrower has limited assets.
• PPSR Registration: Evidence that your security interest is perfected and has priority - backed by accurate registration details.
• Deed Of Variation: Used to change the terms later (e.g. extend the term or adjust repayments) without rewriting the whole agreement.

For simple facilities, keeping documents concise and consistent will help everyone stay aligned - and it makes enforcement cleaner if the worst happens.

Frequently Asked Questions About Simple Loan Agreements

Do I Need A Lawyer For A “Simple” Loan?

Short answer: often yes, at least to review the draft. A small omission (like forgetting PPSR timing) can undo your security. A brief review or a fit-for-purpose Loan Agreement is a smart investment.

Can A Loan Be Interest-Free?

Yes. You can set the interest rate to 0%. Still document the rate (even if nil), the schedule, defaults and whether early repayment is allowed.

What If The Borrower Is A New Company With Few Assets?

Consider security over assets as they’re acquired (via a GSA) and a guarantee from a parent company or owners, noting the risks and responsibilities of personal guarantees.

Is A Director’s Loan To Their Company Different?

It’s still a loan and should be documented at commercial terms, but there may be tax and governance considerations. It’s worth reviewing how director loans operate before finalising the structure.

How Do We Sign Correctly?

For companies, use the safe harbour of Corporations Act section 127 where possible. Electronic signing is widely accepted when the method identifies the signatory and indicates their intention to sign.

Key Takeaways

• A simple loan agreement should be clear, concise and complete - recording the amount, interest, repayments, default and enforcement rights.
• Decide upfront whether the loan is secured or unsecured; security plus timely PPSR registration can dramatically improve recovery prospects.
• Pair a secured loan with the right collateral documents, such as a General Security Agreement, and promptly register a security interest.
• If the borrower has limited assets, consider appropriate guarantees and understand the obligations that come with personal guarantees.
• Execute correctly (ideally under Corporations Act section 127) and keep your records, repayments and PPSR renewals up to date.
• Getting the documents right at the start is faster and cheaper than trying to fix problems after a default - a brief legal review can safeguard the deal.

If you’d like a consultation about preparing a simple loan agreement for your business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.