Two UAE points shape this document. **Interest** requires care — the position differs between onshore and the financial free zones, and compounding is treated differently again. And **security** is only as good as its registration: a charge over movable assets that is not registered where required may not survive the borrower’s insolvency.
Loan Agreement
Term loan — [LENDER] to [BORROWER]
Two UAE points shape this document. Interest requires care — the position differs between onshore and the financial free zones, and compounding is treated differently again. And security is only as good as its registration: a charge over movable assets that is not registered where required may not survive the borrower’s insolvency.
| Item | Detail |
|---|---|
| Lender | [NAME], [licence / Emirates ID] [NUMBER] |
| Borrower | [NAME], licence [NUMBER] |
| Jurisdiction and forum | [Emirate of ______ / DIFC / ADGM] |
| Principal | AED [AMOUNT] |
| Purpose | [DESCRIBE] |
| Interest | [RATE] per cent per annum, [simple] |
| Repayment | [Bullet on maturity / Equal monthly instalments] |
| Drawdown | [DATE] Maturity: [DATE] |
| Security | [None / Charge over ______ / Guarantee by ______ / Cheques] |
| Charge registration due | [DATE] — where a registrable security interest is created |
| Is the lender in the business of lending? | [Y/N] — see Section 1 |
| Language | [English / Bilingual — Arabic prevails onshore] |
1. Before Drafting
| # | Question | Why |
|---|---|---|
| 1 | Is the lender carrying on a lending or finance business? | Regulated activity requires authorisation. A one-off shareholder loan is different from a lending business |
| 2 | Is either party licensed for the activity? | A company lending outside its licensed activities creates questions |
| 3 | Is this a shareholder or director loan? | Connected person rules and transfer pricing apply — it must be at arm’s length |
| 4 | Is it a loan to a director? | Restrictions may apply — take advice |
| 5 | Onshore, DIFC or ADGM? | Interest treatment and enforcement differ |
| 6 | Is security being taken, and is it registrable? | Registration determines whether it survives insolvency |
| 7 | Are cheques being given as security? | Record them; see Section 6 |
| 8 | Does the borrower have existing facilities with a negative pledge? | Granting security may trigger default elsewhere |
| 9 | Withholding on interest to a non-resident lender? | Confirm the position |
| 10 | Bilingual version needed? | Arabic prevails onshore |
1.1Question 3 catches owner-managed businesses. A loan from the owner to the company, or the reverse, is a related party transaction for corporate tax purposes and must be on arm’s length terms with documentation — including an arm’s length interest rate. Interest-free shareholder loans are the most common informal arrangement and the most commonly adjusted.
2. The Loan
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This is page 1 of the Word document, exactly as it appears when you open it. Fields shown like THIS are placeholders for you to complete.
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.
Carrying on a lending or finance business is a regulated activity requiring authorisation, and it differs entirely from a one-off shareholder or intercompany loan. Confirm the position before advancing, and confirm the lending entity’s licence covers what it is doing.
A loan from an owner to the company, or between group entities, must be on arm’s length terms for corporate tax purposes, with documentation and an arm’s length interest rate. Interest-free shareholder loans are the most common informal arrangement and among the most commonly adjusted.
A registrable security interest that is not registered within the required period may be ineffective against a liquidator or a third party — the debt survives but the security does not. Confirm the applicable register and deadline for the specific asset class, and agree in writing who is responsible for filing.
The treatment of interest differs between onshore and the financial free zones, and compounding is treated restrictively onshore. Draft simple interest unless advised otherwise, and be aware that a court may award less than the contract provides regardless of what was agreed.
A punitive default rate risks being reduced or set aside, leaving the lender with less than a moderate rate would have delivered. Two to four per cent above the contract rate is defensible; doubling it invites the whole provision to be examined.
Where the borrower gives cheques, record the number, amount, date and what each secures, and require return with written confirmation on repayment. The treatment of dishonoured cheques changed materially in 2022 — confirm the current enforcement position rather than relying on older assumptions.
Existing facilities frequently prohibit granting further security. Doing so triggers default under that facility, and cross-default provisions then cascade. Check what the borrower has already agreed before structuring the security.
Restrictions may apply to loans to directors and connected persons. Owner-managed companies run director current accounts without appreciating this. Where the lender or borrower is connected to a director, take advice and record the interest declaration.
Managers who allow a company to borrow when they know or ought to know it cannot repay face personal exposure. Prepare and retain the cash flow projection with the resolution, not afterwards.
A guarantee, particularly a personal one, is materially more robust where the guarantor took independent legal advice and that is evidenced. Without it, arguments about misunderstanding and pressure become available.
Where the lender is outside the UAE, confirm whether any withholding applies and settle the gross-up position in the agreement. Silence means it is discovered at the first payment, usually by the lender receiving less than expected.
Clause 5.4 applies payments to costs and interest before principal. On a distressed loan this determines how quickly principal reduces, and borrowers frequently assume the opposite order.
An undischarged security interest on a public register obstructs the borrower’s future borrowing and appears in every diligence exercise. Clause 6.6 obliges the lender to file the discharge; borrowers should chase it.
Where the agreement exists in both languages and the forum is an onshore court, the Arabic governs. For a material loan, use a bilingual version prepared by a qualified legal translator rather than relying on an English-only document.
Reflects UAE law and practice current as of {{DATE OF USE}}. The treatment of interest and compounding, security registration requirements and registers, restrictions on loans to directors, transfer pricing rules, withholding tax and the enforcement of dishonoured cheques all change and differ between onshore, DIFC and ADGM — take UAE legal and tax advice before lending or borrowing any material amount.
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, corporate secretary, or accountant as relevant) before you rely on it.