Unsecured loan agreement: person to person; private or business
This unsecured loan agreement can be used in any situation where the lender does not require or is willing to forgo security in case of default. Both the lender and the borrower could be individuals or companies, making this template suitable for lending to family members and friends, or by a director or shareholder to or from his own company. Included are options for alternative repayment provisions and lender actions if borrower defaults.
About this unsecured loan agreement
An unsecured loan is money lent from one party to another without any collateral to secure its repayment. In most cases, these types of loans are used where the lender is certain that the borrower will repay, or where the borrower is willing to pay a higher interest rate to make up for the lack of security in case of default.
A verbal agreement may be enough to lend small sums to people you trust, but even among family and friends, a formal record of terms will prevent a disagreement later. Where the risk of default is higher, or the arrangement is more complicated, it is essential to record the arrangement in a document like this one.
If you are a director or shareholder, lending to or borrowing from your company, then a written agreement will ensure the arrangement is clear to other directors, shareholders and HMRC.
This document can be used in many lending situations:
- between two individuals, such as family members or friends
- by a company to a director
- by a director or shareholder to a company
- by a partner into a partnership
If you are the borrower, you have the opportunity to edit any point you would prefer not to include.
Purposes of the loan
For this agreement, the purpose of the loan does not affect the terms of the agreement. You may use the agreement to lend your children a deposit for a house, to help a family member or friend consolidate other debts, or for small, short-term expenses, such as medical crises or wedding or funeral costs. You are free to set the duration of the loan to as long or short a period as you need.
There is no limit in law on the interest that the lender charges. We have provided for a greater rate of interest if the borrower falls behind with repayments. (That is done very carefully so as to avoid it being treated as a “penalty” - not allowed in English law.)
The agreement is flexible and can be used in many situations. The template provides a sound and comprehensive agreement containing options. It is supported by drafting notes so that you will know whether you can safely delete some provision. It is most unlikely that you will want to add new provisions, but if you do, it is easy. Our layout and use of plain English also make it very easy to edit by deletion.
- Either or both parties may be in the UK or abroad
- Flexible for loans of any size and repayment terms of any complexity
The law in this document
There is little statutory regulation relating to an agreement of this nature, so you can set the terms, more or less, that you want.
Drawn outside the Consumer Credit Act 1974, this agreement is not suitable for companies in the business of lending or providing credit to consumers.
Alternatives to this agreement
Net Lawman offers other loan agreements that include provisions for security in case of default. They are differentiated by the type of borrower: whether a human individual, or a company.
The documents are:
- Loan agreement: person to person; secured by guarantee
- Loan agreement: private borrower; secured on physical assets
- Loan agreement: individual borrower; secured on financial assets
- Loan agreement: company; secured by guarantee
- Loan agreement: company borrower; secured on physical assets; guarantor option
- Loan agreement: company; secured on financial instruments
We do not provide a document suitable for charging real property (where land and buildings is the security) because such work is restricted by law to solicitors and licensed conveyancers.
The contents of the agreement include
- Structure of the loan
- Alternative draw down arrangements
- Provisions of information to lender
- Repayment and interest payment arrangements
- Method of payment
- Provision for default situations
- Borrower's warranties
- A round up of legal matters
This document was written and is maintained by solicitors at Net Lawman to comply with current English law.
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