If your company makes a loan to another company, this should be documented by a Loan Agreement. A Loan Agreement should state the amount of the funds advanced, the interest rate applicable, and how the loan is to be repaid.
Where the borrower is a company, the lender will usually want the directors of the borrower to personally guarantee the loan. Without these guarantees, the lender would only have recourse against the company should the borrower fail to repay the loan (and the company might not have any assets). By obtaining guarantees, the lender can claim the unpaid money from the borrower’s directors personally, should the borrower default on the loan.
Additionally, it is often advisable to secure the loan against the assets of the borrower. A loan can be secured by a mortgage against real estate, or against the personal property of the borrower (or both). In the former case, a mortgage should be prepared alongside the Loan Agreement and registered on the property’s title. In respect to the latter, the lender should register their interest on the Personal Property Securities Register. By taking security against the borrower’s assets, the lender will take priority over unsecured creditors of the borrower, should the borrower become insolvent.
LegalRocket offers a free Commercial Loan Agreement, which provides for interest and fixed monthly repayments. The document also provides for the directors of the borrower to provide guarantees.
We can also prepare a Loan Agreement tailored to your specific needs, should you require unique terms, or if you want to take security over the assets of the borrower. Please call our LegalRocket lawyers on 1300 615 705, and we can assist you with this.