Thinking About A Loan For Your Business? You Might Need A Loan Agreement

Access to funding can make all the difference to your next growth move-whether you’re buying equipment, smoothing out cash flow or launching a new product line.

If you’re planning to borrow money (from a bank, a private lender, your company’s directors or even a related entity), a clear, written Loan Agreement isn’t just nice to have. It’s the document that sets expectations, manages risk and helps prevent disputes.

In this guide, we’ll unpack when you need a Loan Agreement in Australia, what it should include, the difference between secured and unsecured loans, and the practical steps to put one in place so you can move forward with confidence.

What Is A Business Loan Agreement?

A Business Loan Agreement is a contract that sets out the terms on which money is lent to your business and how it will be repaid. It covers key points like the loan amount, interest rate, repayment schedule, security (if any) and what happens if someone doesn’t hold up their end of the deal.

Think of it as your roadmap. It keeps everyone aligned, supports good record-keeping and can be vital for accounting, tax and compliance purposes.

While many lenders have standard forms, businesses often arrange funding from less formal sources-such as founders, family, directors or related companies-where a tailored Loan Agreement provides the clarity and protection you need.

Do You Always Need One In Australia?

Short answer: you should. Even if you’re borrowing from a friendly source, a handshake or an email trail won’t properly capture terms, protect your position or make enforcement easy if something goes wrong.

In particular, you’ll want a written agreement when:

• Loan amounts are significant or ongoing.
• There’s interest, fees or a variable repayment schedule.
• Security is being granted (for example, a charge over assets).
• The lender is a director, shareholder or related entity (to separate personal and company affairs and avoid misunderstandings).
• You’re refinancing or topping up existing debts.

A proper agreement also helps with due diligence later-if you’re seeking external investment or selling your business, buyers and investors will look for documented debts and security arrangements.

What Should Your Loan Agreement Cover?

Your agreement should be written in plain English and cover the essentials. At a minimum, make sure it addresses the following.

Core Commercial Terms

• Parties: Who is lending and who is borrowing (use correct legal names and ACNs/ABNs).
• Principal: The loan amount, currency and how/when it will be advanced.
• Interest: Rate (fixed or variable), how it is calculated and when it accrues.
• Fees: Establishment, line or default fees-if any.
• Term: Start date, maturity date and any extension options.
• Repayments: Frequency, method (principal and interest, interest-only or bullet) and early repayment rights.

Security And Priority

If the loan is secured, the agreement should spell out what assets are being used as collateral and how the lender’s interest will be perfected (more on perfection below). Often, this is supported by a separate security instrument like a General Security Agreement that grants a security interest over all present and after-acquired property of the borrower.

Default And Enforcement

• Events Of Default: Late or missed payments, insolvency events, breaches of other obligations, misrepresentations, or cross-default with other facilities.
• Remedies: Lender’s rights after default-charging default interest, accelerating the loan, enforcing security, appointing an external controller or demanding additional information.
• Cure Periods: Any grace period to fix a breach before it becomes an event of default.

Borrower Undertakings

• Information: Regular financial statements or compliance certificates.
• Negative Pledges: Limits on taking additional debt or granting further security without consent.
• Use Of Funds: What the loan can be used for (e.g., equipment purchase, working capital).
• Insurance And Maintenance: Keeping key assets insured and in good repair.

Guarantees And Additional Support

Lenders often require a personal or corporate guarantee (especially for smaller or newer businesses). If that’s on the table, it should be documented clearly, usually in a separate Deed of Guarantee and Indemnity that works alongside the main loan terms.

Practical Clauses That Reduce Friction

• Set-Off: Whether the lender can set off amounts owed by the borrower against amounts payable by the lender.
• Assignment: If and how the lender can assign or transfer the loan.
• Notices And Communication: How notices are given and when they take effect.
• Governing Law: Which state or territory laws apply (commonly where the borrower is located).

Secured Vs Unsecured: Which Option Is Right?

One of your biggest early decisions is whether the loan will be secured or unsecured. The choice influences pricing, risk and flexibility.

Secured Loans

A secured loan is backed by collateral-like equipment, inventory or the borrower’s general assets. Because the lender’s risk is lower, secured loans often attract better interest rates or higher limits.

Security is typically recorded in a standalone document (e.g., a General Security Agreement or specific asset charge). To make the security effective against third parties, the lender must register it on the Personal Property Securities Register (PPSR). If you’re exploring this path, it’s worth understanding why the PPSR matters for your business.

For a packaged approach, you can work with a lawyer on a secured Loan Agreement that integrates the security terms and ensures they’re properly perfected.

Unsecured Loans

Unsecured loans aren’t supported by collateral. They can be faster to put in place and simpler to administer, but they usually come with tighter eligibility or higher interest due to the lender’s increased risk.

Where the relationship is trusted (for example, a parent entity lending to a subsidiary), an unsecured Loan Agreement can still provide ample clarity and enforceability without the added complexity of security registration.

Personal Guarantees

Sometimes, a lender will accept an unsecured facility if the founders provide personal guarantees. This doesn’t create collateral over company assets, but it gives the lender recourse to the guarantors personally. If guarantees are involved, document them with a robust Deed of Guarantee and Indemnity and make sure each guarantor gets independent advice.

How To Put A Loan Agreement In Place (Step-By-Step)

Ready to proceed? Here’s a practical way to get it done without unnecessary stress.

1) Agree The Commercial Heads Of Terms

Start with the big-ticket items: amount, purpose, interest rate, term, repayments, security and any conditions precedent (things that must be done before the funds are advanced). A simple heads of terms or email summary between the parties will save time later.

2) Choose The Right Document Suite

Match the documents to the deal:

• Plain vanilla debt: a standard Loan Agreement.
• Security required: pair the loan with a General Security Agreement or specific asset charge and consider guarantees.
• Unsecured but guaranteed: the unsecured loan plus a Deed of Guarantee and Indemnity.

3) Draft, Review And Finalise

Get the documents drafted or reviewed so they reflect your negotiated terms, comply with Australian law and are consistent with your broader contracts (for example, any negative pledges already given to other lenders). If a lender provides its own template, a legal review helps you understand obligations and negotiate fairer terms before you sign.

4) Sign Correctly

Make sure the documents are executed properly-by authorised signatories and in the right form. Execution errors can undermine enforceability, especially for deeds and guarantees.

5) Perfect And Register Any Security

If the loan is secured, don’t stop at signing. The lender must “perfect” its security interest-most commonly by registering it on the PPSR within the required timeframes. This is critical to maintain priority over other creditors.

Where appropriate, complete the filings or ask your lawyer to manage it via a fixed-fee register a security interest service so nothing is missed at this crucial step.

6) Disburse Funds And Operate The Facility

Once conditions are satisfied and security is perfected, funds can be advanced. Keep good records of drawdowns, interest calculations and repayments. If your circumstances change, document any variations in a short amendment deed so the loan remains up to date and enforceable.

7) Keep Your House In Order

Track covenants and reporting obligations. If your agreement requires financials or compliance certificates, diarise the dates. Small admin habits go a long way to preserving trust and avoiding technical breaches.

Related Questions We’re Often Asked

Are Director Or Shareholder Loans Different?

They’re still loans, so the fundamentals are the same. However, when a director or shareholder lends money to the company, it’s especially important to separate personal and company finances, document arm’s-length terms and consider tax implications. If you’re weighing up a director-funded facility versus paying in more equity, talk to your accountant as well as your lawyer.

How Does The PPSR Fit In?

The Personal Property Securities Register is Australia’s public noticeboard for security interests over most non-land assets. If you’re taking collateral (or granting it), understanding registration, timing and priority rules is essential to protecting your position. If you’re new to the regime, start with this overview on PPSR in Australia.

What If The Lender Wants Extra Comfort?

Aside from charging assets (security) and personal guarantees, lenders sometimes ask for undertakings like restrictions on further borrowing or a promise to maintain certain financial ratios. These can be reasonable-but ensure they’re proportionate to the size and purpose of the facility so your business stays agile.

Is A Bank Guarantee The Same Thing?

No. A bank guarantee is a separate instrument a bank issues to support your obligations to a third party (for example, a landlord). It can sit alongside a loan or stand on its own. If a lender is considering alternatives, you can also explore whether a guarantee structure meets the commercial objective without locking up more security than needed.

Practical Tips To Get A Fair Deal

• Price Is More Than Interest: Look at establishment fees, ongoing charges, prepayment costs and default interest. Compare the total cost of funds.
• Match Repayments To Cash Flow: Align repayment frequency and amounts to your revenue cycles so the facility supports you, not the other way around.
• Watch The Definitions: Terms like “Material Adverse Effect” or “Event of Default” shouldn’t be so broad that minor hiccups put you in breach.
• Keep Security Proportionate: Only offer the security necessary to get the deal done and make sure it’s registered correctly to avoid priority issues.
• Plan For Early Repayment: If you expect to refinance or pay down early, negotiate a fair prepayment regime up front.

When A Secured Facility Makes Sense

A secured loan often suits businesses buying big-ticket assets (vehicles, machinery) or those that need a larger working capital line than an unsecured lender will provide. In that case, you’ll want the loan terms, the security instrument and the PPSR registration working together seamlessly.

If you’re not sure how much collateral is appropriate, you can build the security into a well-drafted secured Loan Agreement so there are no gaps between the documents.

When Unsecured Might Be Better

If the loan is small, short-term or coming from a trusted party, unsecured can be faster and cheaper to implement. You still get the protection of a clear contract, but without the additional steps of taking and registering security. For these scenarios, an unsecured Loan Agreement is often the pragmatic choice.

Common Pitfalls (And How To Avoid Them)

• No Written Agreement: Verbal promises are hard to prove. Put terms in writing and have both sides sign correctly.
• Security Not Registered: If you agree to grant security but fail to register on the PPSR in time, you risk losing priority to other creditors.
• Vague Repayment Terms: Ambiguity creates disputes. Spell out amounts, dates and methods, and say what happens if a payment is missed.
• Guarantees Without Advice: Personal guarantees are serious. Make sure guarantors get independent advice and sign an appropriate deed.
• Forgetting Change Management: If you vary the loan later, document the change with a short amendment deed so there’s a clear paper trail.

Templates Vs Tailored Agreements

Templates can be a helpful starting point, but they rarely capture your unique commercial context or integrate neatly with any security, guarantees or existing obligations. A light-touch legal review can often identify simple improvements that reduce risk, clarify obligations and save headaches later on.

If your deal includes collateral, pair your agreement with the right security instrument and follow through with PPSR registration. You can also streamline the process by handling the documentation and the security interest registration together so nothing falls through the cracks.

Key Takeaways

• A Business Loan Agreement is essential for clarity, enforceability and compliance-even when lending between related parties.
• Cover the essentials: parties, principal, interest, fees, term, repayments, default, undertakings and any guarantees or security.
• Choose the structure that fits your needs: a simple unsecured agreement for speed and simplicity, or a secured facility for better pricing or higher limits.
• If taking collateral, pair the loan with a General Security Agreement and protect priority with timely PPSR registration.
• Use guarantees carefully and document them via a Deed of Guarantee and Indemnity with independent advice for guarantors.
• Good process matters: agree commercial terms, draft and review, execute correctly, perfect any security and keep records current.

If you’d like a consultation about putting the right Loan Agreement in place for your Australian business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.