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Product ID: UK-LDGloa20

Friends and family loan agreement

(24 customer reviews)

This agreement aims to bridge the gap between not using a document at all, and using a longer, more comprehensive one.

It makes clear to the borrower that the loan is to be repaid.

Despite its simplicity, the document is legally binding. You can take action if the borrower doesn't pay on time, or uses the money for a reason not agreed.

It is suitable for situations such as lending to a friend or family member:

  • to help fund an expensive purchase such as a car
  • for a personal life event, such as for a mortgage deposit or to fund a wedding
  • for consolidation of other personal debts, or to or pay off student loans
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Product ID: UK-LDGloa12

Unsecured loan agreement: person to person; private or business

(18 customer reviews)

This is a simple agreement where the lender does not require security, perhaps because the borrower is certain to repay or perhaps because risk is priced into a higher interest rate.

Either or both parties could be a person or a company, making this agreement suitable for lending:

  • person to person - for example, to family members and friends
  • by a director or shareholder to or from his own company
  • by a partner into a partnership
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Product ID: UK-LDGloa21

Loan agreement: person to person; property purchase

(1 customer review)

This agreement covers the specific situation of a loan of money to family or friends for the purpose of helping to buy a house or flat, or for a property renovation project.

Even when you trust the person to whom you lend, you should record the agreement in writing.

By using this document, you should avoid confusion about whether the money was a gift or a loan, and the terms or borrowing. This is particularly important for lending to more than one person where there is a risk the relationship between the borrowers may not last, or where the property is jointly owned with someone other than the borrower.

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Product ID: UK-LDGloa14

Loan agreement: private borrower; secured on physical assets

(4 customer reviews)

For a loan secured against tangible assets of any size and type, such as a car, stock, equipment or fixed plant.

Suitable for lending to someone for purposes such as:

  • to consolidate personal debts
  • to fund the purchase of a high value item such as a car

The document includes optional provisions for:

  • assets to be left in the possession of the borrower
  • sale of the assets if the borrower defaults
  • an additional guarantee by a third party
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Product ID: UK-LDGloa13

Loan agreement: individual borrower; secured on financial assets

Not yet reviewed

For a loan secured against assets such as company shares, the right to receive another debt, or intellectual property rights.

Suitable for lending by an individual or a company to an individual or a partnership, for purposes such as:

  • a personal loan to a family member or a friend
  • company loan to a director or an employee
  • a partner lending to his partnership
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Product ID: UK-LDGloa15

Loan agreement: company; secured by guarantee

(1 customer review)

This is an agreement between a lender, who may be an individual or a corporate body, and a borrower, who is a company or a trust. Security is provided by a personal guarantee of a third party, probably by one or more of the directors.

Example uses include lending:

  • by a family member to her nephew’s business
  • by a business angel who has also taken shares
  • at arm’s length “investment”
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Product ID: UK-LDGloa17

Loan agreement: company borrower; secured on physical assets; guarantor option

(2 customer reviews)

This agreement is between a lender, who may be an individual or a corporate body, and a borrower, who is a company. The loan is secured on specific physical assets. This is not a fixed and floating charge.

Security could be any physical assets, lodged or described, with options for:

  • security by either taking physical possession, or by leaving the assets in place and describing them sufficiently in the document
  • occasional use of the assets
  • sale of the secured assets by the lender in case of default

Other optional provisions include:

  • warranties by the debtor as to the financial state of the company
  • the signatory accepts personal liability for his proper authorisation
  • an additional personal guarantee and guarantor’s covenants
  • a promise by the directors not to change the capital structure
  • early repayment
  • contingency plans if something goes wrong
  • assignment of the rights and obligations set up under the agreement
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Product ID: UK-LDGloa16

Loan agreement: company; secured on financial instruments

Not yet reviewed

An agreement between an individual or a corporate body, and a company. The loan may be secured on shares, intellectual property rights or other intangible property.

This agreement strongly protects the lender. If the value of the security falls below a specified level, the lender can call on the borrower to top it up.

Optional provisions include:

  • warranties as to the financial state of the company
  • the signatory accepts personal liability for his proper authorisation
  • an additional personal guarantee and guarantor’s covenants
  • a promise by the directors to make no change to capital structure
  • early repayment
  • contingency plans if something goes wrong
  • assignment of the rights and obligations set up under the agreement
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Introduction

All these agreements are drawn outside the Consumer Credit Act 1974. Whilst that makes them unsuitable for companies in the business of lending or providing credit, for private lending they are very flexible, allowing you to make, more or less, the deal you choose.

These agreements can be used:

  • For short- or long-term lending
  • Regardless of where the two parties are: UK or abroad
  • For loaning amounts of any size, and with repayment terms of any complexity

The terms in these documents

Each document is drawn for circumstances that differ slightly from the others, so the terms in each vary. But be assured - all the documents include the terms appropriate for their purpose.

Note that we provide very extensive guidance notes with every document that explain each paragraph in the document in detail.

Guarantors

Almost all the templates provide for guarantors – even if the amount lent is secured against other assets as well.

In most cases, a guarantee is much more effective than other types of security because non-repayment risks a relationship and the reputation of the guarantor as well as of the borrower. Even if the borrower's credit history is impeccable, a guarantor could be brought in.

Additionally, in most situations, the lender only needs to satisfy himself that the guarantor has sufficient assets overall and passes a credit check, and therefore doesn’t have to perform detailed valuations of individual items offered as security.

We strongly advise that you insist on a guarantor when you lend to a company. The guarantor should be one or more directors of the company. Remember that a guarantee is far more effective if it includes the spouse or life partner of a director.

Term (duration)

The time period during which the sum is lent can be any you choose. There are no “legal” consequences if the term is long or short: no notices, no special registrations.

We suggest that the duration is a specific time period, such as one year, rather than conditional on another event, such as a student loan application being accepted. The problem with a conditional event is that even if it is certain to happen, the two parties may not have the same expectations as to the timing at the outset.

Interest rate

There is no limit in law on the interest rate or the total interest amount that the lender charges. It can be whatever the two parties agree. It could be fixed for the duration, or variable from one time period to another depending on another factor (such as a bank rate). It could be reduced for prompt payment.

We have optionally provided for a greater rate of interest if the debtor falls behind with regular repayments.

Interest could be accrued and all paid at the end of the term, or it could be payable in regular (e.g. monthly) payments. Deferment is more common if the sum borrowed is to be spent on a project that realises a large return at the end of the term, and the principal and interest are paid together.

Loan repayment also could be staggered - we allow optionally for a schedule to be used.

The lender is given strong protection

All templates provide strong protection for the person or party lending the money. This applies more to those documents where the reason for lending is a business one rather than to help family or friends. We take the simple view that since the money is not a gift, everyone expects it to be repaid.

If you are lending to a family member it is unlikely that you will want to bankrupt him for a failed repayment. However, in a business deal remember that if the business goes down, a dispute as to entitlement is more likely to be against a liquidator or receiver than against the shareholder-director who took on the debt. That is why we make the terms of these agreements so strong.

Assets as security

Physical goods can provide sound security because the lender should be able to acquire them and sell them easily should the debtor default. Of course, goods that can be removed easily provide better collateral than those that require specialist equipment to move them.

In these agreements, the sum lent can be secured either by taking physical possession of the assets at the outset, or by leaving them where they are and describing them in sufficient detail in the agreement so that there can be no dispute as to what is charged. The agreement then provides the evidence that the item is secured.

You can read further about security. Our guidance notes to each agreement also discuss it in detail.

Lending to a company requires registration of the charge

If a company borrows against security then registration of the charge at Companies House will be required, if the lender wants to be given preference over unsecured creditors.

Bankruptcy and liquidation law is very complicated. There are rules as to the ranking priority order of different creditors. A creditor arrangement where the document is registered at Companies House takes priority over debts which are not registered. Strangely, it is the company that has the legal obligation to register every charge or debt, even though registration protects the creditor.

When the debt is repaid, whether fully or in part, the company has no obligation to inform Company House. However, it is in the company's own interests that potential investors and lenders are aware that it has satisfied all or part of the debt.

Although we provide explicitly that the company will register the charge, it is best if the lender makes sure this is done. The debt will then be valid against a liquidator or administrator, should the company become insolvent.

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