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Business loan contract guide

Everything you need to know about business loan contracts and what they entail.

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If you're considering a business loan and want to know more about business loan contracts, including what is expected from you and from your lender, find out more in this guide.

What's a business loan contract?

A business loan contract is a written legal agreement between a business and a lender of a business loan. The premise is a promise from the lender to provide funding and the promise of the borrower to repay it, with interest. Loan contracts also protect the interests of both parties by outlining and enforcing the terms of the loan. These terms include factors such as interest and fee payments, the length of the loan, conditions and clauses.

Elements of a business loan contract

Business loan contracts will vary from lender to lender. That being said, here are some of the features that you can expect to find outlined in a business loan agreement:

  • Loan amount

    How much finance the lender is willing to provide your business based on its (and your) financial circumstances.

  • Loan term

    How long you have to repay the loan. This should also include information on whether or not the loan can be extended.

  • Governing law

    Which governing laws the contract is drawn up in accordance with should be outlined in the document.

  • CPs

    Conditions precedents (CPs) are outlined in the loan contract. These represent certain conditions that the borrower must meet in order to be granted the loan amount.

  • Committed or uncommitted loan agreement

    A loan can be either committed or uncommitted. In a committed loan agreement, the lender is contractually obligated to lend the loan amount to the borrower (as long as CPs are satisfied).

  • Security

    If the loan is secured, there will be details of the security in the loan contract.

  • Interest rate

    Whether your business loan interest rate is fixed or variable will be established in the contract. It will also highlight how much interest you have to pay. This is displayed as a percentage of the loan amount and usually calculated per annum. However, depending on the lender, you could be subject to pay a monthly or even a weekly interest rate.

  • Payment schedule

    How often you have to make your repayments. This could be weekly or fortnightly, but it is usually monthly. Most lenders require fixed term repayments, but some may require on-demand payments.

  • Prepayment

    Loan contracts will also outline whether or not extra repayments can be made, or whether the loan can be repaid early.

  • Fees

    An outline of fees is highlighted in the contract terms. These may include administration, monthly, annual, extra repayment or default fees.

  • Events of default

    There will be terms outlined of how the lender will reclaim its money if you were to default on the loan. This may include asset repossession or legal action.

  • Bilateral or syndicated

    The business loan contract should highlight whether the loan is between one lender and one business (bilateral) or one business and multiple lenders (syndicated). Bilateral loans are more common for simpler transactions or smaller amounts of funding. Syndicated loans may be more commonplace with larger commercial loans, which require investment from multiple sources.

  • Amendments

    The contract should outline whether amendments can be made to the contract terms. This could include whether the borrower and the lender need to agree to the amendments, or if the lender can make amendments of its own accord.

Businessman sitting with client signing notes at desk

I have a small business, how can a business loan contract help me?

While larger businesses may have more negotiating power when it comes to business loan contracts, small businesses still benefit from loan contracts. A small business loan contract helps the borrower by legally protecting them from unfair treatment from finance providers. In a small business loan contract, one of the parties to the contract must be a small business. The law defines a 'small business' as a business that employs fewer than 20 people (including casual staff) at the time it enters the contract.

Small business loan contracts will differ from lender to lender, but a number of them are regulated by ASIC (Australian Securities & Investments Commission). Under the New Banking Code of Practice 2019, ASIC acts to protect small businesses from unfair contract terms set out by lenders.

The significance of the New Banking Code of Practice

The New Banking Code of Practice, which came into effect on 1 July 2019, aims to tackle unfair lending terms. Participating banks have placed restraints on themselves that prevent them from applying unfair clauses to their loan contracts.

Lenders who are found to pose unfair clauses in their business loan contracts could face ASIC action. Unfair clauses can be deemed void by a court. However, this rarely invalidates the entire loan contract.

What's a standard form contract?

Most commonly, small business loan contracts are "standard form contracts". This type of contract is outlined by one of the participating parties, i.e. by the lender. In the case of a standard form contract there is generally no negotiation by the other party, i.e. the small business.

Generally, business loan lenders have set standard form contracts that they can alter, depending on the circumstances of the business. These documents will be provided to businesses when they successfully apply for a loan, for them to either agree to or reject. Often with standard form contracts there is little room for bargaining power from the borrower. However, this will depend on the lender.

Business loan contract templates

In some circumstances, you may have the option to use a business loan contract template, instead of a standard form contract. Business loan contract templates can be used when you are getting a private loan from an individual, as opposed to a bank or other lender. Free business loan contract templates can be found easily online.

However, it is advisable to seek professional financial advice prior to attempting to draft up your own contract.

What to remember

If you're looking for a business loan, remember to compare your options thoroughly prior to submitting an application. If your application is approved, read the contract as carefully as possible. It is also always advisable to seek professional financial advice before you sign on the dotted line.

Compare business loans

Data updated regularly
Name Product Min. Loan Amount Max. Loan Amount Loan Term Upfront Fee Filter Values
Moula Business Loan
1 to 2 years
2% Establishment fee
A loan of up to $250,000 that can be approved and funded within 24 hours. Available to businesses with 6+ months operating history and $5,000+ monthly sales.
ebroker Business Loan
1 month to 30 years
$0 application fee
Small business loans available between $5,000 and $5,000,000. Get access to 70+ non-bank lenders on this independent platform.
Max Funding Unsecured Business Loan
1 month to 1 year
$0 application fee
An unsecured business loan from $3,000 that offers convenient pre-approval and no early repayment fees.
Lumi Unsecured Business Loan
3 months to 3 years
2.5% establishment fee
Apply for up to $300,000 from Lumi and benefit from short loan terms, no early repayment fees and once approved receive your funds in just one business day.
Valiant Finance Business Loan Broker
3 months to 5 years
$0 application fee
A Business Lending Specialist from Valiant Finance can give you access to competitive business loans from over 70 lenders. Loans between $5,000 and $1 million are available. Request a call – your loan can be funded in 1 business day.
OnDeck Business Loans
6 months to 2 years
3% of loan amount
Apply for up to $250,000 and receive your approved funds in one business day. Minimum annual turnover of $100,000 and 1 year of trading history required.
Heritage Bank Fully Drawn Business Loan
No maximum amount
1 to 25 years
Application fee is available upon application
Get access to a loan from $20,000 with no maximum limit with Heritage Bank. Loans can be secured by residential and non-residential property and have terms of up to 25 years.
Prospa Business Loan
3 months to 3 years
3% origination fee
Small business loans are available from $5,000 - $300,000 on terms of up to 3 years. At least six months trading history and a monthly turnover from $6,000 is necessary.
ANZ Secured Business Loan
Up to 15 years
Benefit from a low rate when you secure this loan with property and/or business assets. Loans from $10,000 available.
Westpac Business Loan
1 to 30 years
$0 application fee
Purchase a new vehicle, equipment or support your cash flow with a business finance solution from Westpac.
ANZ Unsecured Business Loan
Up to 15 years
Apply for a loan from $10,000 with no security required and benefit from flexible repayment terms.

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