A demand loan agreement is a type of loan that allows the lender to demand repayment of the loan at any time. This means that the borrower does not have a fixed repayment schedule, and must be prepared to pay the entire loan amount back at any time.
In Ontario, demand loan agreements are commonly used in business situations. They can be useful for providing short-term financing for a business, and can be a flexible way to access funding when it is needed.
There are several key elements that should be included in a demand loan agreement in Ontario. These include:
1. Loan Amount: The amount being loaned to the borrower should be clearly stated in the agreement.
2. Interest Rate: The interest rate that will be charged on the loan should also be clearly stated.
3. Repayment Terms: Although the loan may be callable at any time, it is still important to set out the repayment terms that will apply if the loan is not called. These might include a fixed repayment schedule or a minimum interest payment.
4. Security: If the loan is being made to a business, the lender may require some form of security to protect their investment. This could include a personal guarantee from the business owner, or a pledge of assets as collateral.
5. Default and Remedies: The agreement should set out the consequences of default on the loan, as well as the remedies that the lender may pursue if the loan is not repaid.
Creating a demand loan agreement in Ontario can be complex, and it is important to seek legal advice before entering into such an agreement. A lawyer can help you understand your rights and obligations under the agreement, as well as the potential risks and benefits of this type of loan.
When used appropriately, a demand loan agreement can provide a useful source of financing for a business. By understanding the key elements that should be included in an agreement, borrowers and lenders can work together to create a mutually beneficial arrangement that meets their needs.