Loan Agreement
This Loan Agreement (the "Agreement") is entered into on [Effective Date](the "Effective Date") by and between [Who Lender]
, an individual having their usual place of living at [Address], [City], [State] [ZIP Code] (the "Lender"), and
, an individual having their usual place of living at [Address], [City], [State] [ZIP Code] (the "Borrower"), collectively referred to as the "Parties" and individually as the "Party".
WHEREAS the Parties have engaged in discussions and negotiations to reach a mutually acceptable agreement and desire to establish the rights, obligations, and responsibilities of each Party regarding the loan;
NOW, THEREFORE, in consideration of the mutual promises and obligations set forth herein, and upon other good and valuable considerations, the receipt and sufficiency of which is hereby acknowledged, the Parties have agreed as follows:
SUBJECT OF THE AGREEMENT. The Lender, [Lender's name], provides a loan to the Borrower in the amount of [Principal Amount](the "Principal Amount") for the following purpose: [Purpose].
INTEREST RATE. The loan shall accrue interest at the rate of [Interest Rate]% [Interest Rate2] (the "Interest Rate" or "Accrued Interest"). This Interest Rate shall be applied to the Principal Amount. The total Accrued Interest on the Principal Amount shall not exceed the maximum amount allowed by law, and the Borrower shall not be obligated to pay any interest exceeding this limit.
REPAYMENT TERMS AND PROCEDURE. The entire Principal Amount with the Accrued Interest shall be due and payable on [Maturity Date](the "Maturity Date").
Early repayment. The Borrower reserves the right to prepay the Principal Amount, in full or in part, at any time with a penalty of [Penalty] on the Principal Amount to be repaid.
Late payments. If the Borrower fails to make payments by the Maturity Date, the Borrower shall be liable for a late fee of [Late payment percentage]% of the overdue payment amount.
All payments shall be made via [Payment Method].
SECURITY. As part of this Agreement, the Borrower agrees to secure this Agreement by pledging the following security: [Description of the Security](the "Security").The Borrower shall undertake all essential measures to appropriately perfect and record the Lender's security interest in the Security in compliance with relevant laws. The Borrower shall execute any documents, including financing statements or other instruments, as required by the Lender to perfect and maintain the Borrower's security interest. In the event of a default, the Lender shall be entitled to all remedies provided by law, including but not limited to the right to take possession of, sell, or otherwise dispose of the Security to fulfill the outstanding obligations.
COVENANTS. The Borrower agrees to the following covenants and obligations applicable during the term of this Agreement:
DEFAULT. Any of the following events shall constitute a default under this Agreement:
- The Borrower fails to make any payment due under the terms of this Agreement.
- The Borrower becomes insolvent, files for bankruptcy, makes an assignment for the benefit of creditors or becomes subject to any similar insolvency proceedings.
- The sale of a material portion of the Borrower's assets.
Death of the Borrower.
In the event of default, the Lender shall have the following remedies:
- The Lender may demand the entire outstanding Principal Amount, along with the Accrued Interest, to be immediately paid.
- The Lender may initiate collection efforts, including engaging collection agencies or pursuing legal action, to recover the outstanding Principal Amount [Lender's account number] and the Accrued Interest owed under this Agreement.
FORCE MAJEURE. Neither Party shall be liable for any failure to perform or delay in performing the obligations under this Agreement if such failure or delay is caused by events of force majeure, including but not limited to acts of God, war, terrorism, strikes, lockouts, labor disputes, pandemics, epidemics, governmental regulations, or any other similar causes beyond the reasonable control of the affected Party. In the case of force majeure, the affected Party shall immediately notify the other Party in writing and provide reasonable proof of the cause of the delay or inability to perform the obligations. The Party affected by force majeure shall endeavor to mitigate the consequences of such circumstances and resume the performance of obligations as soon as possible after the circumstances cease to exist. If the force majeure circumstances last more than [Number of days] days, either Party may terminate this Agreement by giving written notice to the other Party. In this case, neither Party shall be liable to the other Party for any damages arising from the termination of this Agreement.
CONFIDENTIALITY. The Parties agree to keep all disclosed information, including but not limited to sensitive information, confidential and not share such information with any third party unless required by law. To fulfill the Parties' obligations under this Agreement, they agree not to use the confidential information for any purpose unrelated to this Agreement. This confidentiality clause shall remain in effect after the termination or expiration of this Agreement.
TERM AND TERMINATION. This Agreement shall commence on the Effective Date and shall continue until the [Does Agreement Terminate] ([Maturity Date]) unless terminated earlier under the terms of this Agreement.
Either Party may terminate this Agreement immediately upon written notice to the other Party if the other Party becomes insolvent or files for bankruptcy.
NOTICE. Any notice or communication required to be given under this Agreement shall be deemed duly given if delivered personally or sent by registered mail, return receipt requested to the address specified in the opening paragraph or to such other address as one Party may have furnished to the other Party in writing, or to emails set forth below:
If to the Lender: [Lender's email] Bank: [Lender's bank name], Account: [Lender's account number]. Additional details: [Lender's details]
If to the Borrower: [Borrower's email] Bank: [Borrower's bank name], Account: [Borrower's account number]. Additional details: [Borrower's details]
The Parties may change their registered mail or email addresses for receipt of notices by giving written notice to the other Party.
GOVERNING LAW AND DISPUTE RESOLUTION. This Agreement shall be governed by and interpreted under the laws of the State of [Governing law], and any disputes resulting from or related to this Agreement shall be exclusively resolved by the courts of the State of [Jurisdiction].
SEVERABILITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.
ASSIGNMENT. Neither Party may assign or transfer this Agreement without the prior written consent of the other Party, which approval shall not be unreasonably withheld.
ENTIRE AGREEMENT. This Agreement constitutes the entire understanding between the Parties and supersedes any prior oral or written agreements.
WAIVER. The failure of any Party to enforce a particular provision of this Agreement shall not constitute a waiver of their right to enforce that provision in the future.
AMENDMENTS. This Agreement may be amended or modified only by a written agreement signed by both Parties. Any amendments to this Agreement shall be binding only if they are in writing and signed by both Parties.
BINDING EFFECT. This Agreement shall be binding upon the Parties and their respective successors and assigns.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the Effective Date.
THE LENDER THE BORROWER ____________________________________ (Place for signature) _____________________________________ (Place for signature)
Party 1
________________
Signature
Date: ________________
Party 2
________________
Signature
Date: ________________
What Is a Loan Agreement?
A Loan Agreement in the United States records the terms on which money is advanced and must be repaid, including default consequences.
Loan agreements are governed by general contract law principles and, for secured loans, by Article 9 of the Uniform Commercial Code (UCC). The UCC provides the framework for creating and perfecting security interests in personal property collateral, which is essential when the loan is backed by business assets, vehicles, or equipment. Real property collateral is governed instead by state mortgage or deed of trust statutes.
For private loans between individuals, Internal Revenue Code Section 7872 requires that loans exceeding $10,000 charge interest at or above the Applicable Federal Rate (AFR). Failure to do so triggers imputed interest — the IRS treats the forgone interest as taxable income to the lender and a potential gift to the borrower. This applies to family loans, employer-employee loans, and any other below-market lending arrangement.
Every state enforces usury laws that cap the maximum permissible interest rate on various categories of loans. These caps vary widely — California limits non-exempt personal loans to 10% under Article XV of its Constitution, while Texas permits up to 18% for written contracts under its Finance Code. Exceeding the applicable usury limit can void the interest obligation entirely and expose the lender to statutory penalties.
When Do You Need a Loan Agreement?
When lending money to a business partner, co-founder, or investor for a venture requiring formal documentation of repayment terms, interest rates, and what happens if the business fails.
When structuring family loans — particularly those exceeding $10,000 — to comply with IRS imputed interest rules under Section 7872 and avoid unintended gift tax consequences. Proper documentation with at least the AFR rate keeps the transaction classified as a loan rather than a taxable gift.
When providing bridge financing for real estate transactions, where a buyer needs funds to close on a property before selling their existing home or receiving expected proceeds.
When financing equipment purchases where the equipment serves as collateral, requiring a security interest that must be perfected under UCC Article 9 through proper documentation and filing.
When affiliated companies or a parent corporation and subsidiary need to formalize intercompany loans for proper accounting treatment and transfer pricing compliance under IRC Section 482.
When a promissory note is insufficient because the transaction involves conditions on disbursement, affirmative or negative covenants the borrower must follow, collateral requiring a security agreement, cross-default provisions, or financial reporting requirements. Any lending arrangement with complexity beyond a simple repayment promise requires the bilateral structure of a loan agreement.
What to Include in Your Loan Agreement
The loan amount and disbursement terms — whether the full principal is advanced at closing or released in tranches tied to milestones, inspections, or other conditions precedent. Specify the method of disbursement (wire transfer, check, or ACH) and the account details.
Interest rate and calculation methodology — simple versus compound interest, and whether it accrues daily, monthly, or annually. A 6% annual rate compounded monthly produces an effective annual rate of approximately 6.17%, a difference that compounds significantly on larger principal amounts. Confirm the rate complies with applicable state usury limits.
A detailed repayment schedule defining payment amounts, frequency (monthly, quarterly, semi-annual, or lump sum at maturity), and the final maturity date. For loans exceeding $25,000, attaching an amortization schedule showing the principal and interest allocation of each payment provides clarity and reduces disputes.
Prepayment provisions addressing whether the borrower may repay early without penalty. Commercial loans frequently impose prepayment fees of 1% to 3% of the remaining balance to compensate the lender for lost interest income.
Collateral and security interest provisions, if the loan is secured. Describe collateral with specificity — VIN numbers for vehicles, serial numbers for equipment, legal descriptions for real property. A general description like "all assets" may be permissible under UCC Section 9-108 but is less protective than a detailed schedule.
Events of default defined comprehensively — missed payments, bankruptcy or insolvency, breach of representations, material adverse change in borrower's financial condition, and cross-default provisions triggering default if the borrower defaults on other obligations.
Remedies upon default, including acceleration of the full outstanding balance, seizure or foreclosure on collateral, imposition of default interest rates, and the right to pursue legal action for collection.
Late payment penalties and grace periods — typically a 5% late fee or flat charge with a 10 to 15 day grace period.
Governing law clause identifying the controlling state jurisdiction, and an entire agreement (merger) clause confirming that the written document supersedes all prior negotiations, emails, and verbal understandings.
Cite this page
Reference this free template in an article, syllabus, or research note:
Forms Legal. (2026). Loan Agreement (United States) [Legal document template]. Forms Legal. https://forms-legal.com/usa/financial/loans/loan-agreement
"Loan Agreement (United States)." Forms Legal, 2026, https://forms-legal.com/usa/financial/loans/loan-agreement.
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author = {{Forms Legal}},
title = {Loan Agreement (United States)},
year = {2026},
howpublished = {\url{https://forms-legal.com/usa/financial/loans/loan-agreement}},
note = {Free legal document template. Based on Uniform Commercial Code (UCC §3)}
}Also available for these jurisdictions:
Frequently Asked Questions
Yes, a properly executed Loan Agreement is legally binding in United States when it meets the formal requirements established by applicable local law.
A valid Loan Agreement in United States requires: (1) legal capacity of the parties, (2) free and informed consent, (3) a lawful purpose, and (4) compliance with any formal requirements specified by local legislation.
While not always legally required, consulting a lawyer in United States is recommended to ensure compliance with all applicable laws and regulations.
In United States, electronic signatures are generally recognized for most contracts. However, certain types of documents may require wet signatures or notarization. Check local requirements.
Breach of a Loan Agreement in United States may result in damages, specific performance, or injunctive relief. The aggrieved party can seek remedies through the competent courts.
Yes, electronic signatures are legally valid under the E-SIGN Act (15 U.S.C. 7001) and the Uniform Electronic Transactions Act (UETA) adopted by most states.
The non-breaching party may seek remedies including compensatory damages, specific performance, injunctive relief, or termination. Remedies vary by state law.
Notarization requirements depend on the document type and state law. While not always required, notarization adds authentication and may be necessary for government filing.
This template is provided for informational purposes only and does not constitute legal advice. Laws vary by jurisdiction and change over time. Consult a qualified attorney for advice specific to your situation.Full disclaimer
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