Loans are commonplace in both business and between family and friends, and, though often granted with the best intentions, can quickly turn sour in the absence of a formal written agreement.

However tempting it may be – particularly where an arrangement is made between you and someone you trust – to go about this informally, it is essential not to do so in order to protect not only you but also to protect any relationship that may exist between you and the other party.

The nature of a loan can, of course, vary so it is crucial that a loan agreement matches all relevant circumstances, as opposed to a generic “one-fits-all” agreement pulled from the internet or generated by AI. At the very least, a loan agreement should include the following components:

• The amount that is to be loaned must be clearly set out. Should this amount change in the future (such as where an increase has been agreed) this should always be explicitly set out in writing so that there is evidence to rely on, should this be needed.
• The repayment schedule that the parties have agreed on. How frequent are repayments? Are there any circumstances as to earlier or more frequent repayments? What about if there is a default on one or more repayment (typically known as an “event of default”)?
• The term of the loan, and whether this can be extended in any way (such as by written agreement between the parties).
• Whether any interest is to be charged
• Whether the loan is secured or unsecured. If the loan is secured, what is the collateral (the term for an asset, or assets, that can be repossessed where an event of default occurs)? Where this is the case, it may also be required for a charge to be registered with the HM Land Registry.
• Where a loan is made between a business or corporate entity and a consumer, this is likely to fall under the Consumer Credit Act 1974, which the loan agreement must comply with and ideally reference.

Keeping all of the above in mind, it is always a good idea to consult a legal professional in order to review or draft a loan agreement. You can be confident in that they will ensure the above components, as well as any specific to your individual circumstances, are included to ensure that both parties can take measures to protect themselves in the unlikely event that disputes arise in the future.

We at BEB are contract law specialists who can both review and draft bespoke contracts in line with your needs and individual circumstances. If you would like to discuss your loan arrangement with us or would like a loan agreement drafted, get in touch with us today at 01604 217365 or info@bebconsultancy.co.uk.