A Loan Agreement is a great way to formalise a loan of money or assets to another person. A Loan Agreement is particularly useful for recording a loan between parents and children for the purpose of purchasing a home, as it clearly sets out the terms for repayment.
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The Agreement
Review your Loan Agreement carefully. The AgreePro team is here if you have questions, but it's up to you to make sure it reflects your intentions. Use our AI tool to understand the impact of your loan and know when legal advice may be needed.
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Loan Agreement
What is a Loan Agreement?
A Loan Agreement is used to formally record a loan between two people, making it clear that the borrower must repay the money or return the property by an agreed time.
The person lending the money or assets is the Lender (often a founder, investor, or the business itself), and the person or entity receiving it is the Borrower (typically the business entity or a founder). These agreements are especially helpful for documenting early-stage funding, such as founder loans or initial seed capital, and establishing clear, written terms for repayment. They work best when both parties want to define the terms of a new business's debt structure clearly.
Is there anything else I should consider?
If the loan is to someone in a close personal or business relationship (such as a co-founder or family member), consider how the debt will be treated in the event of a separation or dissolution. A Loan Agreement clearly defines the obligation, but for maximum protection, a separate agreement (like a Relationship Property Agreement or a Founders' Agreement) is recommended. Also, clarify whether the loan is ever intended to be forgiven, and if so, document how that change will be formalized over time.
What do I need to keep in mind when making a loan agreement?
It is important to ensure that you fully identify the people involved, and who is giving and receiving the loan. The amount to be repaid is also crucial.
Anyone entering into a loan agreement should always be aware of any tax or financial consequences that may follow (for example, whether interest applies and how it is to be repaid).
Why do I need a loan agreement?
A Loan Agreement is the simplest way to formally record a financial loan. It clearly outlines who’s involved, the amount loaned, whether interest applies, and the schedule for repayment.
From our experience, these agreements are especially valuable when friends and family are helping a founder launch a new business. The Loan Agreement documents the funds as formal capital (not a gift or equity stake) to the business, providing a clear record of the debt structure to refer to if the business changes ownership, takes on new investors, or if disputes arise among the parties down the line.
Who should use a loan agreement?
Anyone lending money or assets where they expect repayment. This includes parents loaning money to children for a home, loans between family members, or lending to trusts. It’s especially useful when you want clear terms and a written record to avoid future disputes.
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