A business loan agreement is the contract that sets out exactly what you’re borrowing, what you’ll pay, and what happens if things go wrong. The interest rate gets the attention, but the clauses around it often decide how much the loan really costs and how much risk you’re carrying.
This guide covers what a business loan agreement includes, the clauses worth reading twice, and the protections small business borrowers have in Australia.
What Is a Business Loan Agreement?
A business loan agreement is the legally binding contract between you and a lender. It sets out the loan amount, the interest rate, the repayments, the term, any security, and each side’s rights and obligations. You may see it described as a loan contract or the business loan terms and conditions.
In practice you’ll usually receive a letter of offer first, then the loan agreement, and sometimes separate documents such as a security agreement or a guarantee. Once you sign, you’re bound by all of it.
Why You Need to Read It Carefully
Most business loans sit outside the consumer credit rules that protect people borrowing for personal reasons, so the lender isn’t required to follow the same responsible lending process. That makes the contract itself more important, because it’s the main place your rights and obligations are set out.
Business loan agreements are also usually standard form contracts, meaning the lender drafts them and offers them on a take it or leave it basis, with little room to negotiate. You can still ask questions, request changes on larger facilities, and walk away, but you need to know what you’re agreeing to first.
The Key Clauses in a Business Loan Agreement
The loan amount and how it’s paid out. Check the exact amount, whether any fees are deducted before you receive the funds, and when and how the money is released.
The interest rate and whether it’s fixed or variable. A variable rate can change during the loan, so read how and when the lender can change it. Some products use a flat fee instead of an annual rate, which is harder to compare, as our Business Loan Rate Comparison guide explains.
Fees and charges. Establishment fees, ongoing account fees, late payment fees, and any charges for changing the loan. Add these to the cost of the loan, not just the rate.
The repayment schedule. How much, how often, and on what dates. Some lenders collect weekly or even daily repayments, which affects your cash flow.
The term and what happens at the end. Check whether there’s a balloon payment or a lump sum due when the term finishes.
Early repayment and break costs. If you may want to repay early or refinance, find out what it costs. Our Refinance Business Loan guide explains why exit fees and break costs can wipe out an expected saving.
Security. What the lender can take if you can’t repay. For secured lending, this might be property or equipment, and the lender registers its interest on the Personal Property Securities Register, which you can learn about on the PPSR website. Our Secured Business Loans guide covers the risks.
Guarantees. Many loans require a director or owner to give a personal guarantee. Check whether it’s limited to a set amount or unlimited, and what you’d be liable for. Our Unsecured Business Loans guide explains how guarantees work in practice.
Clauses That Deserve a Second Read
Events of default. This lists the circumstances in which the lender can declare you in default, often including missed payments, breaching a condition, or something happening to the business. Look closely at any trigger that isn’t a missed payment.
Cross default. Some agreements say a default on another loan or agreement counts as a default on this one.
Acceleration. This lets the lender demand the full balance immediately if you default.
Variation. Check whether the lender can change the fees, the rate, or other terms during the loan, and whether it must tell you first.
Financial covenants and reporting. Some larger facilities require you to meet financial ratios or provide regular financial reports. Breaching them can be a default even if every repayment is on time.
Set off. This allows the lender to take money from your accounts held with it to cover what you owe.
Your Protections as a Small Business Borrower
Small businesses have a layer of protection against unfair terms in standard form contracts. Under the reforms that started on 9 November 2023, as ASIC explains, using or relying on an unfair term in a standard form contract is illegal and penalties apply. A business counts as a small business if it employs fewer than 100 people or has a turnover of less than $10 million in the previous income year, and for financial products under the ASIC Act, the upfront price payable must be $5 million or less.
A term may be unfair if it creates a significant imbalance between the parties, isn’t reasonably necessary to protect the lender’s legitimate interests, and would cause you financial or other detriment if it were relied on. ASIC publishes guidance for small businesses in its information sheet on unfair contract term protections, which you can find through ASIC’s small business hub.
These protections are a safety net, not a reason to skip reading the contract. Challenging a term after the fact is far harder than spotting a concern before you sign.
Questions to Ask Before You Sign
- What is the total I’ll repay, including all fees, over the full term?
- Can the lender change the rate or fees, and what notice will I get?
- What exactly counts as a default, beyond a missed payment?
- What does it cost to repay early or refinance?
- What am I giving as security, and am I giving a guarantee? Is it capped?
- Is there a balloon or a lump sum due at the end?
- Who do I contact if I’m struggling to make repayments?
Don’t assume you can cancel after signing. There is generally no cooling off period for business loans, so treat your signature as binding.
Getting Advice Before You Sign
A loan agreement is a legal document, and for significant borrowing it’s worth having a solicitor review it, particularly any guarantee and security documents. Your accountant can check how the repayments fit your cash flow and tax position. If you’ve found the lender online, be sure it’s genuine before sharing any documents. Our Online Business Loan guide covers how to check a lender is licensed and avoid upfront fee scams.
ASIC’s Moneysmart also has independent guidance on credit contracts and what to check before you commit.
If you’re borrowing money from, or lending money to, a family member or investor rather than a bank, get a lawyer to draft the agreement. A generic template can easily miss clauses that matter, which is why we haven’t provided one here.
How a Broker Can Help
A broker can walk you through the key terms of an offer, compare the fees and conditions across lenders, and flag clauses that look unusual. They’re not a substitute for legal advice, but they see many loan contracts and can tell you what’s standard and what isn’t. Our Business Loan Broker guide explains how brokers work and are paid.
Lodestar Finance’s Business Loans service compares offers across a panel and helps you understand what you’re signing.
FAQs
Frequently Asked Questions
The parties, the loan amount, the interest rate, fees, the repayment schedule, the term, any security and guarantees, the events of default, and each party's rights and obligations.
Often the terms are standard form and difficult to change, though larger or more complex facilities may allow some negotiation. You can always ask questions and compare with other lenders.
A term in a standard form contract that creates a significant imbalance, isn't reasonably necessary to protect the lender's legitimate interests, and would cause you financial or other detriment if it were relied on. Small businesses have protections against these.
Not legally, but for significant borrowing it's worth having a solicitor review the agreement, especially any guarantee or security documents.
The agreement sets out the consequences, which commonly include the lender demanding the full balance and enforcing any security or guarantee. Read the events of default and acceleration clauses before you sign.
