What is a Business Loan Agreement?

Business Knowledge

A Business Loan Agreement is an agreement between a lender (lending) and a business. It is a commercial purpose loan because business owners take an amount of money from lenders for business growth. 

There is a promise between these two that the lender will give him money on time and the borrower means the business owner will repay on time.

A business loan is a document-based in which all the work is done with the consent of both parties, at what time the lender will give the money, for how much time and how much interest he will pay, and then how much time the borrower will pay back so all this information is included in the document.

Business loans are not so much different from personal loans as both have an interest charge, many types of funds and fees have to be paid.

It is a business contract that is filled with rules and regulations and legal obligations because sometimes in case of some problem, we can give proof to the court by showing the agreement.

What purpose does a business loan agreement go for?

There are many things on which we have to take a loan for the business’s growth. To meet the major requirements of the business, a business loan is taken and a business loan agreement is formed based on the same.

  • When we start a business, we take a business loan.
  • If you want to purchase the equipment of the business.
  • If you want to purchase goods or services.
  • If you want to buy a building, machines, stock, etc.

And everything has its particular agreement with its own repayment time.

Lenders for loans can be anyone, whether you take a loan from the bank or financial institutions or an outside lender but the business agreement is in everyone’s way.

Everyone has to do this formality for security because not everyone wants to take their own risk. If you take a loan from an outsider such as a non-business man, other businessmen, or a landlord type. In this situation, many people make online free documents meaning agreement as proof. But let me be clear, using a free online document in which lack of legal obligation will increase your chances of misunderstanding and rules or regulations mentioned in an online form. 

Every business contract has a different situation because depends on which type of lender do you borrow money from?

Business Loan Agreement template

Date and time

The day and time at which the borrowers borrow from the lender are also detailed in the business loan agreement.

Relationship between parties

When there is a loan agreement between two parties, then the relationship between them is also discussed and their commercial address and if the other person pays the down payment as collateral so that person also discovers in the loan agreement as a third party or co-signer.

Receipt of the Loan amount

Everything should be mentioned in the loan agreement such as the amount of money as a loan taken by a borrower and its receipt. The Loan amount should be mentioned in words as well as numbers with mail addresses include the name of the borrower and lender.

Promissory note

The Business loan agreement is considered as a promissory note or mortgage in which both parties promise to each other to pay the amount in which the mortgage loan covers a property loan such as land and building. For some businesses, promissory notes may be secured or for some, they may be not secured.


While taking a business loan, the lender asks for collateral as a security so the borrower can give anything as collateral such as land, building, machines, house, vehicles, and other things. The collateral is always mentioned in the business loan agreement because in case if the borrower does not fulfill the loan so the collateral pays off the amount of the borrower’s loan for them.

Rules and Regulations

Every loan whether it is personal or business has rules and regulations in which every condition is included in that agreement such as time and length of the loan repayment, installment with periodic payment, what rate of interest charged.

Interest rate is the annual percentage rate

Interest rate is charged as an annual percentage rate, it describes the interest rate as fixed or temporary but the interest rate is charged less than the personal loan.

Fines for non-payment on time

In a business loan agreement, the rules and regulations also include if the borrower does not pay his interest amount till the grace period so he has to pay extra as a fine. This statement is written in the agreement, so the borrower cannot deny it.

Default business loan agreement

If one party breaks the promises included in the business loan agreement, then the agreement is getting default and he has to pay fines because it does not fulfill the terms and requirements. With the acceleration clause, the loan automatically and immediately due and payables if the borrower does not fulfill the requirements of the loan.

State law

If you want to write a loan agreement with an attorney who fulfills the state law requirements. Business loans are related to state laws.

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