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Business Loan Agreement

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business loan agreement is a negotiable contract that documents a lender loaned money to a company. It is a negotiable contract that serves as a roadmap for how a company will pay back its loan. Depending on the type of loan, the term can range from 1-25 years, interest rates can vary from 2-40% APR, and the amount borrowed can total up to five million dollars ($5,000,000).

A few common reasons businesses obtain loans include:

  • To fund a startup that has yet to earn revenue (or break even)
  • To recruit new (or better) employees;
  • To expand a department or team within the company;
  • To purchase equipment or machinery; and/or
  • To fund the buying of merchandise/inventory.


Types of Business Loans

Term Loans

The most common type of business loan. The borrower receives the loaned funds in-full, which they’ll be required to pay off for a set amount of time in weekly, monthly, or bi-monthly increments (although other repayment timelines can be negotiated).

  • Amount: $50,000 to $600,000
  • Term: 1 – 5 years
  • Avg. rate: 5 – 30%

SBA Loans

An SBA loan isn’t issued by the Small Business Association (a government agency dedicated to assisting small businesses) – instead, the SBA acts as a partial guarantor for a loan provided by a traditional bank or credit union. Because the SBA guarantees they’ll pay part of the loan should the business default, banks are more willing to loan to businesses that would otherwise be deemed as too much of a risk to lend to.

  • Amount: <$10,000 to $5,000,000
  • Term: 5 – 25 years
  • Avg. rate: 6.5 – 13%

Business Line of Credit

Similar in function to a credit card, a business line of credit provides companies with a loan they can use whenever needed. Because the business doesn’t receive money upfront, interest is only applied to the amount the business is currently using. If the business pays off all (or a portion of) their balance, they can deduct the funds again. The main difference between a business line of credit and a business credit card is that the line of credit can be applied to a wider range of expenses.

  • Amount: $5,000 to $200,000
  • Term: 1 – 5 years
  • Avg rate: 15 – 50%


These often take the structure of a term loan and are used by startups and other companies that don’t qualify for traditional loans, as well as businesses that don’t need significant amounts of funding. They are provided by the SBA and many online lenders.

  • Amount: Up to $50,000
  • Term: 3 months – 7 years
  • Avg. rate: 5 – 20%

Invoice Financing

This method of loaning money is a type of short-term financing for companies that issue invoices. The borrowing company can borrow “against” any outstanding invoices they have. For example, if a company has a $50,000 outstanding invoice that the client has 45 days to pay, the company could borrow 85% against the invoice. This gives the borrower a means of paying their employee’s salary and any other expenses they’re relying on the invoice to cover. Once the client pays the invoice, the lender returns the 15% they held.

  • Amount: Dependent on the invoice value
  • Term: Until the client pays off the invoice (typically 30-90 days)
  • Avg. rate: A processing fee of ~3% is often charged, as well as a weekly factoring fee. Altogether, expect 3-6% of the invoice amount in total.

How to Write

Download: Adobe PDF, MS Word (.docx), OpenDocument (.odt)

Step 1 – Basic Loan Information

In the box at the top of the form, enter the amount of the loan. The first field is for writing the amount of the loan in words, such as “One-hundred thousand dollars”. The second field is for writing the amount of the loan numerically, such as “$100,000.00”. Then, enter the date the agreement is being completed (the current date).

Step 2 – The Parties

The “parties” refers to two (2) entities: the borrower and the lender. Because this loan agreement is for a business, the borrower will be considered as the business. This section will require the lender to enter the following information:

  • Agreement date (same as in Step 1);
  • Business name;
  • Business type (ex: “Limited Liability Company”);
  • Business principal address;
  • Lender name; and
  • Lender address.

Step 3 – Payment

There are a total of four (4) options when it comes to how the borrower can pay for the loan. Only one (1) option can be selected. The first two (2) options are for having the borrower make weekly or monthly payments to the lender. Both options are for a fixed-term (have payment start and end dates).

Step 4 – Interest

Enter the amount of interest that the borrower will be required to pay on the loan. The first field is for the percent written out in words (ex: “Five-percent”), and the second field is for writing out the interest as a number (ex: “5%”).

Step 5 – Prepayment

Oftentimes loans require the borrower to pay a prepayment penalty if they pay off too much of the loan at one time. If the lender will not require a prepayment penalty, check the first option. If they will require a penalty, do the following:

  • Check the second option;
  • Enter the percentage (%) the borrower has to pay at one time in order to trigger the penalty;
  • Enter the number (#) of years the penalty will be active for; and
  • Enter the fee percentage (%) for each year following the start date of the loan.

The fee percentage comes off of the amount the borrower is paying – not the full amount of the loan.

Step 6 – Attorney’s Fees

Enter the name of the state the agreement is being completed in.

Step 7 – Governing Law

Enter the name of the state who’s laws will govern the loan agreement.

Step 8 – Additional Terms & Conditions

If the lender wishes to include any other loan terms, they can do so in the section here.

Step 9 – Signatures

Finally, the parties will need to sign the loan agreement. Both the lender and borrower will need to print their name, date their signature, and sign the form (either digitally with eSign, or by printing the form and signing it by hand). If the parties will have witness(es) sign the form, then all parties will need to sign the form at the same time.