Business Loan Agreements detail the terms and conditions under which a business borrows funds from a lender. Such agreements are governed not only by federal laws but also by provincial laws, including the Ontario Business Corporations Act (OBCA) and the Ontario Securities Act. Understanding the critical components of a Business Loan Agreement benefits the lender and the borrower. Below are eight essential elements often found in Business Loan Agreements in Ontario.

1. Identification of Parties

The agreement must identify the names and locations of the lender and the borrower. This ensures enforcement of the agreement.

2. Loan Amount and Disbursement

The agreement should specify the loan amount, any disbursement schedule, and the account into which the funds will be deposited.

  • Example: “A principal loan of $100,000 CAD will be disbursed in two installments of $50,000 CAD each on October 28, 2023 and November 28, 2023.”

3. Interest Rates

Interest rates should be explicitly stated and comply with Section 347 of the Canadian Criminal Code, which governs criminal interest rates.

  • Example: “The Lender promises to loan $100,000 CAD to the Borrower and the Borrower promises to repay this principal amount to the Lender, with interest payable on the unpaid principal at the rate of 8.00 percent per annum calculated yearly not in advance, beginning October 28, 2023”

4. Repayment Terms

Detail how the loan will be repaid, including the frequency of payments, due dates, and whether a grace period is allowed.

  • Example: “This Loan will be repaid in consecutive monthly installments of principal and interest commencing on October 28, 2023 and continuing on the twenty-eighth of each following month until September 28, 2024 with the balance then owing under this Agreement being paid at that time.”

5. Security and Collateral

If the loan is secured, identify the collateral that will be used to secure the loan in compliance with the Personal Property Security Act (Ontario).

  • Example: “The loan will be secured by the borrower’s commercial real estate located at [Address].”

6. Covenants

Loan covenants are a series of small, independent agreements between the borrower and the lender. Loan covenants expressly outline behaviours a borrower must or must not engage in.

  • Example: “The borrower covenants that the loan will be used exclusively for the expansion of its Ontario-based operations.”

7. Events of Default

The agreement should list conditions under which the loan becomes immediately payable or subject to other penalties, as permitted under Ontario law.

  • Example: “Notwithstanding anything to the contrary in this Agreement, if the Borrower defaults in the performance of any obligation under this Agreement, then the Lender may declare the principal amount owing and interest due under this Agreement at that time to be immediately due and payable.”

8. Governing Law and Dispute Resolution

Stipulate which laws will govern the agreement and how disputes will be resolved. In Ontario, parties often agree to resolve disputes through arbitration or in the courts of Ontario.

  • Example: “This Agreement will be construed in accordance with and governed by the laws of the Province of Ontario. Any disputes arising from this agreement shall be resolved through arbitration in Ontario.”


Understanding these eight essential elements can significantly aid in drafting a comprehensive and legally sound Business Loan Agreement in Ontario. Given the complexity and the high stakes involved, consulting with legal professionals experienced in Ontario’s commercial lending laws is strongly advised.

Contact us today if you seek a business lawyer to draft comprehensive and effective agreements that align with your unique requirements.

The information provided above is of a general nature and should not be considered legal advice. Every transaction or circumstance is unique, and obtaining specific legal advice is necessary to address your particular requirements. Therefore, if you have any legal questions, it is recommended that you consult with a lawyer.