Commercial Contracts

Loan Agreement

To be executed on stamp paper or with a revenue stamp of the value prescribed for a promissory note in the relevant State. A promissory note must be for an unconditional promise to pay a certain sum, and must not contain any condition or reference to another document beyond identification.

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Loan Agreement

Unsecured term loan — with optional demand promissory note and guarantee

This Loan Agreement (this "Agreement") is made at [PLACE OF EXECUTION] on [DATE].

BY AND BETWEEN

[LENDER NAME], [CONSTITUTION — a company bearing CIN ______ / an individual, son/daughter of ______, aged ______], holding PAN [PAN], having its registered office at / residing at [ADDRESS] (the "Lender") of the ONE PART;

AND

[BORROWER NAME], [CONSTITUTION], holding PAN [PAN], having its registered office at / residing at [ADDRESS] (the "Borrower") of the OTHER PART.

Recitals

A.The Borrower has requested the Lender to grant a loan for the purpose set out in Clause 3.

B.The Lender has agreed to grant the loan on the terms and subject to the conditions recorded in this Agreement.

C.The Parties confirm that the loan is granted out of the Lender’s own funds, is not made in the course of any money-lending business, and does not constitute a deposit within the meaning of the Companies Act, 2013 or the rules made under it.

NOW THEREFORE the Parties agree as follows:

1. Definitions

1.1"Business Day" means a day other than a Saturday, Sunday or public holiday on which banks are open for general business at [CITY].

1.2"Disbursement Date" means the date on which the Loan, or a tranche of it, is credited to the Borrower’s account.

1.3"Event of Default" has the meaning given in Clause 10.

1.4"Loan" means the principal amount of ₹ [LOAN AMOUNT] (Rupees [AMOUNT IN WORDS] only), or so much of it as is disbursed and remains outstanding.

1.5"Outstanding Amount" means, at any time, the aggregate of the principal then outstanding, accrued interest, default interest, costs and all other amounts payable under this Agreement.

1.6"Repayment Date" means each date on which an instalment falls due under Schedule 1, and "Final Repayment Date" means [DATE].

2. The loan

2.1The Lender agrees to lend and the Borrower agrees to borrow the Loan, on the terms of this Agreement.

2.2The Loan shall be disbursed [in a single tranche on ______ / in tranches as set out in Schedule 1], by electronic transfer to the Borrower’s account specified in Schedule 3. Disbursement to that account constitutes good discharge of the Lender’s obligation.

2.3The Borrower shall acknowledge receipt of each disbursement in writing within [NUMBER] Business Days.

2.4The Lender’s obligation to disburse is conditional on: (a) receipt of this Agreement duly executed and stamped; (b) receipt of the documents listed in Schedule 4 in form and substance satisfactory to the Lender; (c) the representations in Clause 8 being true on the Disbursement Date; and (d) no Event of Default having occurred and continuing.

3. Purpose

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Preview of the first page. Highlighted fields are the ones you fill in — they appear the same way in Word. Scroll the preview to read on; the full document runs to 11 pages.

Notes for use

These notes accompany the template and explain the drafting choices, the compliance points and the mistakes most often made with this document. They appear as a final page in the Word file, intended to be deleted before the document is executed.

Before a company lends or borrows

If the lender is a company, Section 185 of the Companies Act, 2013 restricts loans to directors and to entities in which directors are interested, and Section 186 limits inter-corporate loans and investments and requires board and, beyond specified thresholds, shareholder approval, with the rate not being lower than the prescribed government security yield. If the borrower is a company taking money from individuals, Section 73 and the Companies (Acceptance of Deposits) Rules, 2014 may treat the receipt as a deposit, with serious consequences — loans from directors out of their own funds are exempt subject to a written declaration, and loans from shareholders of a private company are subject to conditions. Take advice before disbursing; this is the most common way an ordinary loan becomes a compliance problem.

Money-lending legislation

Several States regulate money-lending and require registration for persons carrying on the business of lending, with penal consequences and, in some States, unenforceability of the loan. An isolated loan between businesses is generally outside these Acts, but repeated lending is not. Check your State’s money-lenders legislation if lending is recurrent.

Interest rate and penal interest

Between commercial parties, the rate is a matter of contract, but a default rate that is punitive rather than a genuine pre-estimate of loss may be reduced under Section 74 of the Indian Contract Act, 1872. Keep the default margin moderate — an unrealistically high rate is more likely to be read down than enforced. If the borrower is an individual consumer, take advice on unconscionability.

Limitation

A suit for recovery of money lent must ordinarily be filed within three years of the due date. Clause 12 requires a periodic written acknowledgement, which under Section 18 of the Limitation Act, 1963 starts a fresh period of limitation from the date of acknowledgement. Diarise it — loans lost to limitation are lost entirely.

Demand promissory note

A DPN is a separate, self-contained instrument and is valuable because it permits a summary suit. It must be an unconditional promise to pay a certain sum and must be properly stamped at the time of execution; a promissory note that is unstamped or insufficiently stamped cannot be admitted in evidence and, unlike most instruments, the defect cannot be cured by paying duty later. Get the stamping right on day one.

Post-dated cheques

Cheques delivered under Clause 7.4 give access to Section 138 of the Negotiable Instruments Act, 1881 on dishonour. Present them within their validity period of three months, keep the return memo, and follow the statutory notice timeline strictly — see the separate Legal Notice under Section 138 template.

Guarantee

The waiver of surety rights in Schedule 6 is standard lender drafting but not unlimited in effect; a guarantor who is a consumer or a family member may resist it. Where the guarantor is a company, confirm that giving the guarantee is within its objects and that the Section 185/186 analysis has been done for the guarantor as well.

TDS on interest

From 1 April 2026, deduction on interest is under Section 393 of the Income-tax Act, 2025 in the entry that replaced Section 194A. Individuals and HUFs are within the deduction net only in defined circumstances. Confirm applicability, threshold and rate with your chartered accountant before the first interest payment, and quote the new payment code on the challan.

Mode of disbursement and repayment

Disburse and repay only through banking channels. Cash loans and repayments above the statutory threshold attract penalties equal to the amount of the transaction under the income-tax provisions dealing with cash acceptance and repayment of loans.

Stamp duty

A loan agreement, a promissory note and a guarantee are separately chargeable instruments, and the articles and rates differ by State. Duty on a promissory note is often ad valorem. Stamp before or at execution.

Current as of

Reflects Indian law current as of {{DATE OF USE}}. Verify the Companies Act position and your State’s stamp and money-lending rules before executing.

This is a ready-to-use template provided for convenience. Laws and requirements change, and every situation is different — please have it reviewed by a qualified professional (a lawyer, company secretary, or chartered accountant as relevant) before you rely on it.