Business & commercial

Loan agreements in Victoria.

Money lent to family, a friend or a related company is still a debt, but only if it is documented. CMK Legal prepares loan agreements for private lenders, families, directors and businesses across Victoria, with the security and registration needed to make the loan recoverable.

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Solicitor-drafted

Agreements drafted for the actual arrangement, including family and related-party loans.

Practical timeframes

Most agreements drafted within 3 to 5 business days.

Fixed fee, quoted first

Fixed fee for drafting, with security and registration quoted separately.

Australian commercial law

Contract law, PPSA, NCC and Division 7A considerations.

What a loan agreement does.

A written loan agreement records four things a court will otherwise have to guess at: that the money was a loan rather than a gift, how much was advanced and when, what interest and repayments apply, and when the lender can demand repayment. Undocumented family loans are one of the most common causes of estate disputes and Family Court arguments about whether an advance to a child was a loan or a gift.

For commercial and related-party loans, the agreement also needs to deal with default interest, acceleration on default, set-off, subordination to a bank facility, and Division 7A where a private company lends to a shareholder or associate. Getting Division 7A wrong turns a loan into a deemed dividend and a tax problem.

Security is the other half. A loan can be secured by a mortgage over real property, a general or specific security agreement over business assets registered on the PPSR, a caveat, or a personal guarantee. Unsecured lending is a commercial choice, but it should be a deliberate one rather than an oversight.

Limitation periods apply. A simple contract debt in Victoria is generally recoverable for six years from when the cause of action accrues, an on-demand loan that is never demanded can quietly become unenforceable.

What a proper loan agreement covers.

Amount, interest and repayment

The principal, whether it is drawn in one advance or in tranches, the interest rate and how it is calculated, the repayment schedule or on-demand terms, and whether early repayment is allowed.

Security and registration

Mortgage, caveat, general security agreement or specific security over equipment, registered on the PPSR or at Land Use Victoria so the lender's priority is protected against other creditors.

Default and recovery

What constitutes default, notice and grace periods, default interest set at a level that is not a penalty, acceleration of the whole balance, and the enforcement steps available.

Family and estate consequences

Recording an advance to a child as a loan rather than a gift, aligning it with your will, and considering how the Family Court may treat it if the child's relationship ends.

You should document the loan if.

  • You are lending money to a child for a property deposit
  • You are lending to or borrowing from your own company
  • Two related businesses are moving funds between them
  • You are lending privately at interest against property security
  • A shareholder or director has put money into the business
  • The loan needs to sit behind a bank facility
  • You want the debt to survive and be recoverable by your estate
  • You have already lent money with no loan agreement

It is not too late if the money has already gone out. An acknowledgment of debt signed now is far better than nothing, though it should be prepared carefully.

How we prepare a loan agreement.

  1. 01

    Understand the arrangement

    Who is lending, to whom, why, what security is available and how the loan is intended to be repaid.

  2. 02

    Structure and tax check

    We flag Division 7A, NCC licensing and estate consequences, and coordinate with your accountant where relevant.

  3. 03

    Drafting

    The loan agreement prepared with the security documents, guarantees and any subordination deed required.

  4. 04

    Execution

    Signing arranged, independent advice organised for any guarantor, and the advance conditions confirmed.

  5. 05

    Registration

    PPSR registration, mortgage or caveat lodged, and a diary note of key dates and the limitation period.

Transparent loan agreement fees.

Loan agreements are drafted for a fixed fee quoted before we start. Security documents, guarantees, PPSR registrations and mortgage lodgement are quoted as add-ons so you only pay for what the deal needs. Registration fees and duty are listed separately as third-party costs.

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FAQs

Loan agreement FAQs.

Still unsure? Call us on (03) 9008 7224 and speak to a lawyer, not a call centre.

Do I need a written agreement to lend to family?
You are not legally required to have one, but without it the advance is very likely to be treated as a gift. A short written loan agreement is the difference between a recoverable debt in an estate or a family law proceeding and money that is simply gone.
Do I have to charge interest?
No. A loan can be interest-free, and many family loans are. What matters is that the terms are recorded. Where a private company is the lender, Division 7A may require a minimum interest rate and set repayment terms to avoid the advance being treated as a dividend.
How do I secure the loan?
Against real property, by a registered mortgage or, in some circumstances, a caveat. Against business assets, by a general or specific security agreement registered on the PPSR. You can also take a personal guarantee from a director or third party. We advise on what is available and proportionate.
What is Division 7A?
A tax rule that treats certain loans from a private company to shareholders or their associates as assessable dividends unless the loan is on complying written terms with a minimum rate and maximum term. If your company is lending, this must be addressed in the documentation.
Do I need a credit licence to lend?
If you lend to individuals for personal, domestic or household purposes, the National Credit Code and licensing obligations may apply. Loans wholly for business or investment purposes are generally outside that regime, but the purpose must be genuine and properly declared.
How long do I have to recover a loan?
Generally six years from when the debt becomes due, though the position differs for deeds and for on-demand loans. A written acknowledgment of the debt can restart the clock, which is one reason to review long-standing family loans periodically.

Related services.

Guarantees & securities

Personal guarantees, mortgages, GSAs and PPSR registrations explained and negotiated.

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Banking & finance

Facility agreements, security documents and settlements reviewed before you sign.

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Solicitor's certificates

Independent legal advice certificates for guarantors and borrowers, same week.

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