A loan agreement is a written contract between a lender and a borrower that sets the amount, the interest rate, the repayment schedule, and what happens if payments stop. It’s what you want when the loan is big enough, long enough or complicated enough that a one-page IOU leaves too many questions. This free loan contract sample works for personal loans between individuals and for loans to or from a small business.

Is a loan agreement different from a promissory note?

Yes. A promissory note is mostly one-sided: the borrower promises to pay a sum on stated terms. A loan agreement is two-sided. It covers when and how the lender advances the money, what the borrower states about itself, what the borrower promises to do (or not do) while the loan is outstanding, any collateral, and what counts as default.

A rough rule: if you’re lending your nephew $3,000 to fix his car, our promissory note is plenty. If you’re lending $60,000 to a friend’s restaurant, paid out in two draws, secured by kitchen equipment, with a requirement to send you quarterly financials, you want a loan agreement. Plenty of lenders use both: the agreement for the terms, and a note attached as Exhibit A as the borrower’s formal promise to pay.

If the money is really an investment in exchange for a share of the business, it isn’t a loan, and you’d be looking at a partnership agreement or an LLC operating agreement instead.

What does this loan agreement cover?

The loan and disbursement. The principal, how it’s paid out (all at once or in draws), and any conditions before the lender has to advance money.

Interest. A fixed annual rate, or zero, and how it’s calculated. There’s a hard ceiling in the template: interest can never exceed the maximum the law allows.

Repayment. Equal monthly installments, interest-only with a balloon, or a single lump sum on a due date. You can attach an amortization schedule.

Prepayment. Whether the borrower can pay early without a penalty. The template defaults to yes.

Late payment. A grace period and a late fee, again capped by what’s lawful.

Collateral. Optional. If the loan is secured, the template describes the collateral and has the borrower agree to sign what’s needed to perfect the lender’s security interest. For property like vehicles or real estate, that usually means extra filings or documents that this agreement alone doesn’t cover.

Borrower’s statements and promises. That the borrower has authority to borrow, will use the money for the stated purpose, and will send basic financial updates if you choose that option.

Default and remedies. Missed payments, false statements or bankruptcy count as default. The borrower gets written notice and a chance to cure before the lender can demand the full balance.

Guarantor. An optional section for someone who stands behind the loan, useful when lending to a new company whose owner will sign a personal guarantee.

State usury limits

States set their own limits on the interest a private lender can charge, and the caps, exceptions and penalties differ from one state to the next. New York is a clear example: its Banking Law section 14-a sets the general civil maximum at 16% a year, and its Penal Law section 190.40 makes it criminal usury in the second degree to knowingly charge more than 25% a year without legal authority. Other states set different numbers and exceptions for business loans. Look up your state’s rule before you pick a rate, and if the borrower is in another state, check theirs too.

Consumer lending rules

Federal Truth in Lending disclosures under Regulation Z apply to “creditors,” which the regulation limits to people who regularly extend consumer credit, meaning more than 25 times in the preceding calendar year (or more than 5 times for loans secured by a dwelling). A one-off personal loan to a friend usually falls outside that, but if you lend often, read the rule.

Family loans and the IRS

Interest-free or low-interest loans between relatives can have tax consequences. Under 26 U.S.C. 7872, the IRS can treat the interest you didn’t charge on a below-market loan as if it had been paid, measured against the applicable federal rate (AFR), which the IRS publishes each month as a revenue ruling. For gift loans between individuals, the rule generally doesn’t apply while the total outstanding between them is $10,000 or less, unless the money goes toward income-producing assets. For gift loans up to $100,000, the imputed amount is limited to the borrower’s net investment income, and treated as zero if that income is $1,000 or less. If you’re lending family more than $10,000, book a short call with a tax professional before you send the money.

How do you fill it in and get it signed?

  1. Agree the amount, rate, schedule and first payment date, and check the rate against your state’s limit.
  2. Decide whether the loan is secured and whether anyone will sign as guarantor.
  3. Fill in the template and attach an amortization schedule if payments are regular.
  4. Both parties sign, plus any guarantor. Keep proof of the transfer of funds with the signed copy.
  5. Record every payment received. A shared spreadsheet is fine.

The agreement itself can be e-signed: under the federal ESIGN Act, a contract can’t be denied legal effect just because it’s electronic. Filings to secure collateral, and documents for real estate, follow their own rules, so see documents you can’t sign electronically before assuming every piece can be signed online.

Download it, fill in the blanks, and send it for e-signature with any tool you like. (We’re building SignWren for exactly this; join the waitlist.)

This template and guide are general information, not legal or tax advice. For a specific loan or dispute, talk to a lawyer licensed where you are.