ContractsCounsel Logo

Draft Loan Agreement

Clients Rate Lawyers on our Platform 4.9/5 Stars
based on 7,528 reviews
Home Blog Draft Loan Agreement

Jump to Section

Need help with a Loan Agreement?

Create a free project posting

What Does It Mean to Draft a Loan Agreement?

If you are a lender or want to give someone a personal loan, drafting a loan agreement can formalize the arrangement. Loan agreements are binding contracts between a borrower and lender that cover details, terms and conditions, and repayment schedules in the repayment agreement.

Borrowing a loan can help you, from starting a business to buying a house, but the lender takes a risk whenever they give someone money. To not only recoup their loss but financially profit from the loan, they’ll need a loan agreement that includes a reasonable agreed-upon interest rate.

Drafting a loan agreement allows you to loan someone money while legally enforcing their obligation to repay you. Without a loan agreement, there is no way to take someone to court for borrowing money and not paying it back, even if they said they would.

Here is an article that defines loan agreements.

Types of Loans

A loan is borrowing money and repaying it over time, usually with interest. But not all loans are the same, and the loan type you borrow will affect when you pay it back, how you make repayments, and how much you’ll owe at the end of the agreement.

Below are four of the most common loan structures.

Unsecured Conventional Loan

Unsecured conventional loans do not require any collateral to borrow. Collateral is assets you put forth as a show of good faith, which the lender can claim if you fail to pay back your debt. Common collateral includes:

An unsecured loan relies on creditworthiness for approval. If someone’s credit score is too low or they do not have a credit history, they will not be approved for this type of loan.

Secured Conventional Loan

Secured conventional loans require collateral to protect the lender’s investment in the borrower. Suppose a borrower doesn’t pay back what they owe. In that case, the lender has the legal right to seize the collateral offered in the initial loan agreement and recover their financial losses.

Opened-Ended Loan

Open-ended loans are pre-approved, similar to credit cards, and allow the borrower to withdraw funds gradually at their discretion. So, rather than be given a lump sum of cash at once, you are approved to borrow a certain amount. This flexible type of loan lets borrowers take out and repay their loans incrementally.

Open-ended loans are also known as lines of credit because they give someone access to a set amount of money they can borrow as needed. The limits, terms of repayment, and interest rate will all vary by lender and borrower.

Closed-Ended Loan

Closed-ended loans have a fixed amount of money a person can borrow, which must be repaid at the end of the payment agreement. You are given a set amount of time to repay what you’ve borrowed and any interest.

Close-ended loans can be personal cash, auto, or home mortgages.

Here is an article with 17 different types of personal loans to know about.

Meet some lawyers on our platform

Brian R.

1 project on CC
View Profile

Sara S.

41 projects on CC
View Profile

Jennifer P.

1 project on CC
View Profile

Gregory B.

138 projects on CC
View Profile

Who Can Draft a Loan Agreement?

You can write your loan agreement or have a lawyer draft the loan agreement for you. A handwritten loan agreement is legally binding as long as it meets your state's legal contracts requirements.

All legal contracts must be signed mutually and without coercion or stress. In addition, the contract cannot be unconscionable, meaning it is extremely favorable to one party or deliberately undermines or exploits another.

Drafting a loan agreement can be as simple as posting a project on ContractsCounsel’s marketplace. You’ll receive personalized bids from licensed attorneys to write your contract for a flat fee.

You can also explore online loan agreement templates to understand better what your document should look like. You should submit a template to a lawyer for review if you decide to use a template. Even if a legal template seems valid, it may not contain the necessary provisions your state requires.

You can also have a borrower sign a promissory note. This document contains a promise to repay their debt for a specific date. Promissory notes are used in place of loan agreements.

Here is an article with a guide to promissory notes.

What Should Be Included in a Loan Agreement?

Every loan agreement needs the following elements:

1 . Lender and Borrower Information. You should begin the agreement by identifying the borrower and lender by their legal names.

2. Type of Loan, Loan Amount, and Issue Date. The loan agreement's introduction should describe the loan type the borrower is requesting, how much money it will be offered, and the date the loan goes into effect.

3. Terms and Conditions. Any and all relevant terms and conditions relating to the loan, repayment, and interest should be outlined. You may also attach a collateral loan agreement or convertible loan agreement. Ensure your agreement clarifies how much the borrower has been given and how much they owe at the end of the loan term (principal balance plus all interest).

4. Deadline. Establishing a deadline for the borrower to make repayments is crucial, even if they have an open-end loan. While their line of credit can remain open, they must still have deadlines to make payments and fully pay off any borrowed amounts.

5. Consequences of Non-payment. Be sure to include the penalties for non-payment and procedures the lender will take in order. For example, failure to miss a payment deadline may start with a written notice to pay, followed by legal action.

6. Statement of Agreement. The loan contract must have a statement of agreement acknowledging that both parties agree to the terms. It can be as simple as, “By signing this document, both the lender and borrower acknowledge and agree to the terms and conditions of this agreement.”

7. Signatures and Dates. Both parties should sign and date the agreement before any loan money is dispersed. Dates are especially important as loan agreements tend to focus on deadlines for repayment. Without a date, it can be difficult for the court to determine when a borrower was legally obligated to repay their loan.

Here is an article with ContractsCounsel’s guide on how to write a loan contract in 6 steps.

What is the Purpose of a Loan Agreement?

The purpose of a loan agreement is to legally force the borrower to repay the money they owe the lender. Without a written loan agreement or promissory note, it can be difficult for the lender to hold the borrower accountable for payment.

Loan agreements can protect borrowers, too. By listing the terms of the loan and an agreed-upon interest rate, you can prevent yourself from being exploited and having the lender change the terms or rate of your loan at will.

Here is an article with the seven most important terms to include in any loan agreement.

What is the Difference Between a Loan Agreement and a Mortgage?

A loan agreement can apply to any type of personal, business, or home loan. For example, a mortgage is a loan someone borrows to purchase real estate, like a house or commercial property, for their business.

Loan agreements are a part of any mortgage; the borrower agrees to repay the lender over a fixed period of time for a certain amount. Interest rates can be fixed or variable, depending on the mortgage you borrow.

Here is an article with information from the Consumer Protection Financial Bureau about how mortgages work.

Post a project in ContractsCounsel’s marketplace to receive flat fee bids from lawyers for your project. All lawyers have been vetted by our team and peer-reviewed by our customers for you to explore before hiring.

Need help with a
Loan Agreement?

Create a free project posting

Meet some of our Lawyers

Julian H. on ContractsCounsel
View Julian
5.0 (3)
Member Since:
July 14, 2020

Julian H.

Business Attorney
Free Consultation
Washington, DC
21 Yrs Experience
Licensed in MD
Howard University School of Law

I am a business attorney with years of experience advising individual entrepreneurs and small businesses on issues ranging from entity selection/formation to employment law compliance, to intellectual property protection and exploitation. I often act as General Counsel for my clients fulfilling the legal function as part of a team of managers. I look forward to learning more about your business and how I may be of assistance.

Charlton M. on ContractsCounsel
View Charlton
5.0 (10)
Member Since:
September 19, 2022

Charlton M.

Free Consultation
Dallas, TX
9 Yrs Experience
Licensed in TX
University of St. Thomas School of Law

Charlton Messer helps businesses and their owners with general counsel and contract drafting services. He has helped over 500 businesses with their legal needs across a variety of industries in nearly a decade of practice.

Robert M. on ContractsCounsel
View Robert
5.0 (1)
Member Since:
February 14, 2023

Robert M.

Free Consultation
2 Yrs Experience
Licensed in TN
Nashville School of Law

Robert is a sixth-generation Tennessean and part of a long line of Tennessee attorneys: There has been a Marks attorney in Tennessee since 1856. In 1929, Robert’s great-grandfather established an event venue, Shadowbrook, which Robert has worked at his entire life, including managing for 10 years. He knows what business owners are dealing with—especially venue owners—because he has dealt with it. While Robert loves the hospitality industry, he pursued his passion. In 2016, Robert decided to attend law school and continue managing the business. He thrived. He was a founding member of the Nashville School of Law's Legal Aid Society, received the Tennessee Supreme Court’s Law Student for Justice award, and interned with the Tennessee Supreme Court's Access to Justice Commission. Before co-founding Mercury Legal Group, Robert focused on estate planning in solo practice. In this role, he helped clients protect what they had spent a lifetime building. Now he helps his clients build their businesses by providing tailored legal services.

Jimmy V. on ContractsCounsel
View Jimmy
4.9 (7)
Member Since:
February 10, 2023

Jimmy V.

Free Consultation
42 Yrs Experience
Licensed in TX
University os San Diego

I’m a semi-retired, long-time US attorney with substantial experience in business and corporate law. I counsel startups and small businesses, help them set up corporations or LLCs across the country and draft a variety of contracts and corporate documents.

Kandil O. on ContractsCounsel
View Kandil
Member Since:
February 9, 2023

Kandil O.

General Counsel
Free Consultation
9 Yrs Experience
Licensed in CA
ULH2 - master degree in business law

A business law practitioner by passion, I take pride in the perfection of my contracting Skills. Every piece of information I gather and spin together transforms to a legally binding document, providing great legal protection for start-ups and leading to eventual growth. I am a natural in law and entrepreneurship, making for a perfect blend.

Moxie M. on ContractsCounsel
View Moxie
Member Since:
February 11, 2023

Moxie M.

Employment Lawyer
Free Consultation
Los Angeles, CA
13 Yrs Experience
Licensed in CA, FL, OH
Stetson University College of Law

Lindsey has always been deeply invested in the power of knowledge; she was born and raised in Columbus, Ohio before making her way to Miami University for a dual Bachelor's degree. Afterward, Lindsey completed a Juris Doctor at Stetson University with an International Law concentration before earning a Health & Hospital law Certificate from Seton Hall School of Law. After graduating law school, Lindsey began her career as an associate at a Florida-based insurance litigation firm. She eventually transitioned to become a multi-year Rising Star in Employment Law by Super Lawyers as a labor and employment lawyer with Scott Wagner and Associates, supporting clients in Florida, California & Ohio with employment law matters. Her expertise covers counseling on workplace policies/handbooks; investigations into EEO discrimination/retaliation claims; wage disputes & wrongful terminations - equipping employees across multiple states for success in the ever-changing modern workforce landscape. Leveraging extensive knowledge of state/federal regulations gained from handling dozens of cases over many years, Lindsey has established herself as a leader in the field. Lindsey is a seasoned litigator, well-versed in the complexities of employer and employee disputes. She has represented clients on both sides during numerous mediations and provides an informed perspective when advocating for her clients' interests. She sharpened her dispute resolution skills by completing Harvard Law School's Negotiation Mediation course as part of their Executive Education Program as well as a Florida Circuit Civil Certified Mediator - making her qualified to mediate Circuit Civil cases in Florida as well as California and Ohio. Her breadth of knowledge provides valuable insight into the complexities each side faces while navigating their way through conflict mediation situations. With her varied expertise in the world of entertainment industry employment law, Lindsey has become a go-to source for Hollywood professionals, studios, and companies looking to make sure their legal considerations and entertainment contract law knowledge is up to date. From contract negotiations and employment advice to her outstanding knowledge of current regulations, she provides clients with everything they need for success both now and into the future. Lindsey dedicates her time and expertise to advancing the legal community. She proudly serves on the Executive Council for Florida Bar Association Labor and Employment Section, as well as with American Bar's Membership Outreach Committee in a leadership role. Lindsey is also an respected LA Magazine Editorial Board Member while Co-Chairing both LACBA CLE Event Dinner Committees - focusing on labor and employment law developments. Lindsey is passionate about providing accessible legal services to those in need. She serves on the Pro Bono Mediation Panel for the U.S Central District Court of California, volunteers as a mediator with California Lawyers for Arts and acts as Settlement Officer with Los Angeles Superior Court's ResolveLA program - all while donating her time towards resolving disputes through pro bono mediation at Equal Employment Opportunities Commission (EEOC). Lindsey is a globetrotter, an outdoor enthusiast, and dedicated sports fan all rolled into one. While splitting time between California, Florida and Ohio she has the best of three world - from hiking trails to family gatherings there's always something interesting on her horizon! Plus with photography as a hobby Lindsey enjoys capturing life’s precious moments so they can be treasured for years to come.

Find the best lawyer for your project

Browse Lawyers Now
other helpful articles

Need help with a Loan Agreement?

Create a free project posting

Want to speak to someone?

Get in touch below and we will schedule a time to connect!

Request a call

Find lawyers and attorneys by city