A Canadian Loan Agreement is a legally binding contract between a lender and a borrower that sets out the terms under which money is advanced and must be repaid. It establishes the principal amount, interest rate, repayment schedule, default consequences, and any security or collateral pledged to guarantee repayment. The agreement applies to both personal loans between individuals and commercial loans between businesses.

Canadian loan agreements are subject to federal legislation that imposes strict limits on interest and disclosure. The Criminal Code of Canada (s. 347) makes it a criminal offence to charge an effective annual interest rate exceeding 60%, including all fees and charges. The federal Interest Act (R.S.C. 1985, c. I-15) requires that the interest rate be clearly expressed as an annual rate — if a loan agreement states interest on any other basis (such as monthly) without disclosing the equivalent annual rate, the lender can only recover interest at 5% per annum under s. 4 of the Act.

For secured loans — those backed by collateral such as vehicles, equipment, or inventory — the lender must register the security interest under the applicable provincial Personal Property Security Act (PPSA) to establish priority over other creditors. Each province maintains a PPSA registry (Ontario's is administered by ServiceOntario, BC uses the BC Personal Property Registry). Failure to register means the lender's security interest may be subordinated to other creditors in the event of the borrower's insolvency.

The agreement should also address the tax treatment of interest payments (deductibility for business borrowers under the Income Tax Act) and any GST/HST implications, as financial services are generally exempt from GST/HST but certain loan-related fees may not be.

When lending money to a friend, family member, or associate, and both parties want enforceable terms governing repayment, interest, and default consequences to protect the relationship and the lender's legal position.

When a small business borrows from a private lender, investor, or shareholder rather than a bank, and needs a formal agreement that complies with the Interest Act and Criminal Code interest cap provisions.

When providing seller financing in a business sale or real estate transaction, where the purchase price is partially paid through a loan from the seller to the buyer with a structured repayment schedule.

When a secured loan involves collateral (vehicle, equipment, accounts receivable, or inventory) and the lender needs to document the security interest before registering it under the provincial PPSA.

When a company makes an intercompany loan to a subsidiary or related entity and needs documentation to satisfy CRA transfer pricing rules and demonstrate the loan is at arm's-length terms.

Without a written loan agreement, the lender has no enforceable right to interest, no documented default remedies, and may face challenges recovering the principal in court. The CRA may also reclassify undocumented advances as gifts or income, creating unintended tax consequences for both parties.

Principal Amount and Disbursement — The exact amount being lent, the currency (CAD), and the method and date of disbursement. For loans disbursed in instalments, include a draw schedule with conditions for each advance.

Interest Rate and Disclosure — The annual interest rate expressed as required by the Interest Act. If interest is calculated monthly or daily, the equivalent annual rate must be disclosed. The total effective rate, including all fees, must not exceed 60% per annum under Criminal Code s. 347. Specify whether the rate is fixed or variable and, for variable rates, the benchmark rate used (e.g., Bank of Canada prime rate).

Repayment Schedule — Payment amounts, frequency (weekly, bi-weekly, monthly), maturity date, and whether payments are interest-only, blended (principal and interest), or a lump sum at maturity. Include the total number of payments and the final payment amount.

Prepayment Rights — Whether the borrower may repay the loan early, in whole or in part, without penalty. The Interest Act s. 10 gives borrowers the right to prepay certain loans after five years with a three-month interest penalty, but the agreement should address prepayment for the specific loan term.

Security and Collateral — If the loan is secured, describe the collateral in sufficient detail for PPSA registration. Include the borrower's obligation to maintain the collateral, insure it, and not encumber it with additional security interests without the lender's consent.

Default and Remedies — Define what constitutes default (missed payment, breach of covenant, insolvency, material adverse change) and the lender's remedies, including acceleration of the entire balance, seizure of collateral, and appointment of a receiver under provincial law.

Representations and Covenants — The borrower's confirmation of their legal capacity to borrow, the accuracy of financial statements provided, and ongoing obligations such as maintaining insurance, providing periodic financial reports, and notifying the lender of adverse events.

Governing Law — The province whose laws govern the agreement, which determines the applicable PPSA regime, limitation periods for enforcement, and court procedures for collections.