How to Use This Checklist
Click each checkbox to mark items as complete. Your progress is automatically saved to your browser. Use this checklist to:
✅ Three Ways to Use This Tool
1. Draft new loan agreements: Ensure you don't miss any essential legal clauses or Consumer Credit Act requirements
2. Review existing agreements: Audit your current loan contract against all 54 compliance points
3. Understand loan structures: Learn what makes a legally enforceable loan agreement in the UK
⚠️ Why ACAS Code Compliance Matters
📋 Legal Enforceability: Without a written agreement, proving the loan terms and securing repayment becomes extremely difficult. Verbal agreements are hard to enforce.
⚖️ Consumer Protection: The Consumer Credit Act 1974 requires specific documentation for loans to individuals over £25,000. Failure to comply can make the agreement unenforceable.
🎯 Tax Implications: Proper documentation proves interest rates for tax purposes. HMRC requires evidence for interest-free or below-market-rate loans between connected parties.
💼 Business Loans: Company loans to directors or shareholders must comply with Companies Act 2006. Unauthorized loans can result in criminal penalties and breach of director duties.
⚠️ Understanding Importance Levels
🔴 Critical: Must have - legal requirement or creates serious enforceability risk if omitted
🟡 Important: Should have - highly recommended for proper legal protection and clarity
🔵 Recommended: Best practice - enhances clarity and reduces potential disputes
1. Parties & Identification (6 items)
Lender Full Legal Name
Include complete legal name as it appears on official documents. For individuals: full first and last name. For companies: registered company name exactly as shown at Companies House. Accurate identification is essential for enforceability.
🔴 Critical
Lender Address
Full current address of the lender. For companies: registered office address. For individuals: residential address or business address. This establishes jurisdiction and where legal notices should be sent. Keep updated if address changes.
🔴 Critical
Borrower Full Legal Name
Complete legal name of borrower exactly as appears on ID/registration documents. For companies: registered name with company number. For individuals: full legal name matching passport/driving license. Accurate identification crucial for enforcement and credit reporting.
🔴 Critical
Borrower Address
Complete current address where borrower resides or operates. For companies: registered office. Must be accurate for service of legal notices, default notices, and enforcement proceedings. Borrower must notify lender of any address changes.
🔴 Critical
Company Registration Numbers (if applicable)
For limited companies: include Companies House registration number. For LLPs: LLP registration number. This confirms legal entity status and allows verification at Companies House. Essential for business loans and helps confirm borrowing authority under company constitution.
🔴 Critical
Loan Type Designation
Clearly state whether this is a personal loan (between individuals) or business loan (involving companies). This classification affects: Consumer Credit Act applicability, tax treatment, interest deductibility, and regulatory requirements. Don't leave ambiguous.
🔴 Critical
2. Loan Amount & Purpose (6 items)
⚠️ Loan Amount Must Be Crystal Clear
The principal loan amount is the foundation of the agreement. It must be stated in pounds sterling with precision (£10,000.00). Any ambiguity about the amount makes the contract unenforceable. For variable-amount facilities, specify maximum limit and drawdown procedures.
Principal Loan Amount
State exact amount in GBP with specific figures: "£10,000.00" not "approximately ten thousand pounds". Write amount in both figures and words for clarity: "Ten Thousand Pounds (£10,000.00)". This is the core contractual term - any ambiguity renders agreement unenforceable.
🔴 Critical
Agreement Date
Date when parties sign the agreement and it becomes legally binding. Written as: "This Agreement is made on [day] [month] [year]". This establishes when contractual obligations begin and is reference point for all other dates (drawdown, first payment, maturity).
🔴 Critical
Loan Purpose
Specify what borrower will use funds for: "purchase of motor vehicle", "business working capital", "property renovation". Important for: Consumer Credit Act classification, tax treatment (business interest deductibility), security requirements, and lender's understanding of risk. Be specific not vague.
🟡 Important
Drawdown Date
Date when lender will transfer funds to borrower. Can be same as agreement date or future date. State specific date or conditions: "within 5 business days of signing" or "upon completion of security registration". Interest typically begins accruing from drawdown date not agreement date.
🔴 Critical
Payment Method for Drawdown
Specify how funds will be transferred: bank transfer (include account details), check, or other method. For bank transfer, borrower provides account name, sort code, account number. Creates clear record of funds transfer and proves loan was actually advanced. Essential evidence if dispute arises.
🟡 Important
Currency Declaration
State that all amounts in agreement are in pounds sterling (GBP/£) unless otherwise specified. If loan involves foreign currency (rare for UK domestic loans), specify currency, exchange rate mechanism, and which party bears exchange rate risk. Removes any ambiguity about currency.
🔵 Recommended
3. Interest & Calculations (8 items)
⚠️ Interest Terms Must Be Clear and Calculable
Interest rate provisions must be clear enough that any party can calculate interest owed. Vague terms like "reasonable interest" or "market rates" are unenforceable. State: interest-free (0%), fixed rate (specific %), or variable rate (base rate + margin). Consumer Credit Act requires APR disclosure for regulated agreements.
Interest Rate Type
Specify one of: (1) Interest-free (0% - common for family loans), (2) Fixed rate (rate stays same for loan term), (3) Variable rate (changes with reference rate). Each has different implications for risk, tax, and calculation. State clearly: "This is an interest-free loan" or "Interest shall accrue at fixed rate of 5% per annum".
🔴 Critical
Fixed Interest Rate (if applicable)
If fixed rate: state exact annual percentage rate (APR): "5.00% per annum". Specify calculation method: simple or compound interest. State when interest accrues: daily, monthly, annually. Example: "Interest shall accrue daily at 5% per annum calculated on 365-day basis on outstanding principal balance."
🔴 Critical
Variable Rate Formula (if applicable)
If variable: specify base rate (Bank of England Base Rate or SONIA) plus fixed margin. Example: "Bank of England Base Rate plus 2% per annum". State how often rate reviewed (monthly, quarterly) and effective date of changes. Specify floor rate (minimum) if any: "Interest rate shall not fall below 1% per annum".
🔴 Critical
Interest Accrual Method
Explain how interest calculated: simple interest (calculated on original principal only) or compound interest (interest added to principal, then interest calculated on new total). State accrual frequency: daily, monthly, annually. Example: "Interest compounds monthly" vs "Simple interest calculated annually". Affects total repayment amount significantly.
🟡 Important
Day Count Convention
Specify how many days used to calculate annual interest: actual/365 (most common for UK), actual/360, or 30/360. Example: "Interest calculated on actual number of days elapsed divided by 365". Technical but important - affects precise interest calculations especially for partial periods and leap years.
🟡 Important
Tax Treatment Disclosure
Include tax warning: "Lender must declare interest income to HMRC. Borrower may claim tax relief on business loan interest. Interest-free or below-market-rate loans between connected parties may create taxable benefit." Not legal advice but alerts parties to seek tax advice. Shows professional approach.
🔵 Recommended
Interest Payment Timing
State when interest paid: (1) with each instalment (amortizing loan), (2) monthly in arrears while principal repaid separately, (3) all interest at end with principal (bullet loan), or (4) interest rolled up and paid at maturity. Must align with repayment schedule. Different tax implications for each structure.
🔴 Critical
APR Statement (Consumer Loans)
For regulated consumer credit agreements (loans to individuals over £25,000): Consumer Credit Act requires Annual Percentage Rate (APR) disclosure in prescribed format. Calculate total cost of credit including all fees and charges. Use standard APR formula. Failure to disclose APR correctly can make agreement unenforceable.
🔴 Critical
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4. Repayment Terms (8 items)
⚠️ Repayment Schedule Must Be Specific
Vague repayment terms like "repay when able" or "by mutual agreement" make enforcement impossible. Must specify: payment amount, frequency (monthly/quarterly/annual), due dates, payment method, and loan term. Include amortization schedule if instalments vary. Clear schedule protects both parties.
Loan Term Duration
State total duration: "3 years from drawdown date" or "36 months". Include final maturity date when all principal and interest must be repaid. Example: "Loan shall be repaid in full by 31 December 2027". Clear end date essential for calculating payments and enforcing repayment.
🔴 Critical
Repayment Schedule Type
Specify payment frequency: monthly (most common), quarterly, annually, or bullet payment (single payment at end). State number of payments: "36 monthly instalments" or "12 quarterly payments". Frequency affects total interest paid - more frequent payments reduce interest burden.
🔴 Critical
First Payment Date
Exact date of first payment: "1st January 2025". Usually one month or one period after drawdown. Example: "First payment due one calendar month after drawdown date". Clear first payment date establishes schedule for all subsequent payments. Essential for payment tracking.
🔴 Critical
Payment Amount Per Period
State instalment amount: "£305.50 per month" for fixed payments. If variable payments (amortizing loan with reducing interest), include schedule or calculation method. For interest-only periods, state: "Interest-only payments of £X for first 12 months, then capital and interest payments of £Y thereafter".
🔴 Critical
Payment Day of Month/Quarter
For monthly payments: specify day of month (1st, 15th, last business day). For quarterly: specify month and day. Example: "Payments due on 1st day of each month" or "Quarterly on 1st March, June, September, December". If payment date falls on weekend/bank holiday, state when payment should be made (preceding or following business day).
🟡 Important
Payment Method & Account Details
Specify how borrower makes payments: bank transfer (provide lender's account name, sort code, account number), standing order, check. State payment reference to include. Bank transfer recommended for clear audit trail. If lender's account changes, state notice requirements for new account details.
🟡 Important
Early Repayment Rights
State whether borrower can repay early without penalty: "Borrower may repay loan in full or part at any time without penalty" or "Early repayment incurs penalty of 2% of amount repaid" or "Early repayment not permitted". Consumer Credit Act gives borrowers right to early settlement with rebate of future interest.
🔴 Critical
Application of Payments
Explain order payments applied: typically (1) fees and costs, (2) accrued interest, (3) principal. Example: "Payments applied first to any outstanding fees, then to accrued interest, then to principal reduction." Important when payments missed or partial payments made. Affects how quickly principal reduces.
🔵 Recommended
5. Security & Guarantees (6 items)
⚠️ Security Documentation Requires Separate Legal Documents
Loan agreement should STATE whether loan is secured, but actual security (legal charge over property, debenture over business assets, personal guarantee) requires separate formal documentation. Property charges must be registered at Land Registry. Company charges must be registered at Companies House within 21 days.
Secured vs Unsecured Status
State clearly: "This is an unsecured loan" or "This loan is secured by [describe security]". Unsecured = no collateral, lender is unsecured creditor in borrower's insolvency. Secured = lender has charge over specific assets and priority claim. Fundamentally affects lender's risk and enforceability rights.
🔴 Critical
Security Description (if secured)
Describe security asset in detail: property address and Land Registry title number, vehicle make/model/registration, business assets covered by debenture, specific equipment with serial numbers. Cross-reference separate security documentation: "Security provided by legal charge dated [date] registered at Land Registry under title number [XX123456]".
🔴 Critical
Security Registration Requirements
State obligations to register security: "Borrower shall execute legal charge within 7 days and register at Land Registry within 21 days" or "Charge over company assets to be registered at Companies House within 21 days". Late registration can void security. Specify who pays registration fees (typically borrower).
🟡 Important
Guarantor Provisions (if applicable)
If guarantor required: state guarantor name, address, and that they guarantee repayment. Guarantor must sign separate guarantee deed. State guarantee is unlimited (for all amounts) or capped (maximum £X). Guarantor must receive independent legal advice - note this requirement. Guarantor is jointly liable with borrower.
🔴 Critical
Insurance Requirements (if secured)
For secured loans, require borrower maintain insurance on security asset: comprehensive motor insurance for vehicle loans, buildings/contents insurance for property. State minimum coverage levels. Require lender noted as interested party on policy. Borrower must provide proof of insurance annually. Lender may insure at borrower's expense if borrower fails.
🟡 Important
Restrictions on Security Asset
State borrower obligations regarding security: cannot sell, transfer, or further charge asset without lender consent. Must maintain asset in good condition. For vehicles: cannot materially modify, must maintain valid MOT/tax. For property: must maintain in good repair, cannot create tenancies without consent. Breach triggers default.
🟡 Important
6. Default & Enforcement (8 items)
Late Payment Consequences
Specify what happens if payment late: fixed late fee (£X), percentage penalty (Y% of overdue amount), or increased interest rate on overdue amounts. Late Interest Act 1998 allows statutory interest on commercial debts. State grace period if any: "5 business days grace before late fee applies". Must be reasonable not penalty.
🟡 Important
Events of Default Definition
List situations constituting default: non-payment of any amount when due, breach of any covenant, false information provided, borrower insolvency/bankruptcy, material adverse change to borrower's financial condition, security asset damage/loss, breach of other agreements with lender. Comprehensive list protects lender's interests.
🔴 Critical
Default Notice Requirements
State lender must give written notice of default before accelerating loan: "If Event of Default occurs, Lender shall give Borrower written notice specifying default and requiring remedy within [14] days." Consumer Credit Act requires specific default notice format with 14-day remedy period for regulated agreements. Proper notice essential for enforceability.
🔴 Critical
Acceleration Rights
State that on default (after proper notice if required), entire outstanding balance becomes immediately due: "Upon Event of Default, Lender may declare entire outstanding principal, accrued interest, and costs immediately due and payable." Known as "acceleration clause". Allows lender to demand full repayment rather than waiting for scheduled payments.
🔴 Critical
Lender's Enforcement Rights
Specify lender's remedies on default: (1) sue for outstanding amounts, (2) enforce security (if secured loan), (3) appoint receiver over business, (4) pursue guarantor, (5) report default to credit reference agencies. State enforcement costs borne by borrower. For secured loans, explain enforcement process and borrower's redemption rights.
🟡 Important
Legal Costs Recovery
State borrower reimburses lender's reasonable legal costs for enforcement: "Borrower shall pay Lender's reasonable legal costs and expenses incurred in enforcing this Agreement or recovering sums due." Include court fees, solicitor fees, debt collection costs. Must be "reasonable" - excessive costs not recoverable. Helps deter default.
🟡 Important
Set-Off Rights
Allow lender to set off any amounts borrower owes against amounts lender owes borrower (if any). Example: "Lender may set-off any amounts due under this Agreement against any amounts Lender owes to Borrower under any other agreement." Useful if parties have multiple financial relationships. Must be expressly stated.
🔵 Recommended
Consumer Credit Act Default Procedures
For regulated consumer agreements: state compliance with Consumer Credit Act default notice requirements (sections 87-89). Must use prescribed form, give 14 days to remedy, explain consequences of non-compliance. Cannot repossess goods or enter premises without court order. Failure to follow procedure makes enforcement action void.
🔴 Critical
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7. Borrower Covenants & Obligations (6 items)
Information Accuracy Representation
Borrower confirms all information provided to lender is true, accurate, complete. Material misrepresentation is event of default. Example: "Borrower represents and warrants that all information provided in connection with this loan is true and accurate as of date of this Agreement." False information voids agreement.
🔴 Critical
Notice of Material Changes
Borrower must notify lender of: change of address, change of employment/financial circumstances, other loans taken out, legal proceedings against borrower, insolvency proceedings. State timeframe: "Borrower shall notify Lender within 7 days of any material adverse change." Allows lender to monitor risk and take protective action.
🟡 Important
Use of Funds Restrictions
If loan purpose specified, state funds may only be used for stated purpose. Example: "Borrower shall use loan proceeds solely for [stated purpose] and not for any other purpose without Lender's written consent." For business loans, may restrict use for dividends, other loans, or capital expenditure beyond certain limits.
🔵 Recommended
Financial Covenants (Business Loans)
For business loans, may include: maintain minimum net worth, debt-to-equity ratio not exceed X:1, provide annual financial statements within 120 days of year end, maintain positive working capital. Allows lender to monitor business financial health. Breach of financial covenant is event of default.
🟡 Important
Negative Pledge (if applicable)
Borrower agrees not to: create other security over assets (negative pledge), guarantee other debts, sell significant assets, change business nature. Protects lender's position and prevents asset stripping. Example: "Borrower shall not create any security interest over assets without Lender's prior written consent." Common for business loans.
🔵 Recommended
Record Keeping & Access
For business loans, borrower maintains proper accounting records and allows lender reasonable access on notice to inspect books and records. Helps lender verify financial covenant compliance. State: "Borrower shall maintain proper accounting records and allow Lender's representatives reasonable access on 48 hours' notice."
🔵 Recommended
8. General Provisions (6 items)
Governing Law
State which UK jurisdiction's law applies: "This Agreement shall be governed by and construed in accordance with the laws of England and Wales" (or Scotland, Northern Ireland). Usually where lender located. Determines substantive law rights, limitation periods, court procedures. Essential for international loans or parties in different UK jurisdictions.
🔴 Critical
Jurisdiction & Court Selection
Specify which courts have jurisdiction for disputes: "The courts of England and Wales shall have exclusive jurisdiction to settle any dispute arising from this Agreement." Prevents jurisdictional disputes. Can be non-exclusive allowing either party to sue elsewhere, but exclusive jurisdiction cleaner and cheaper.
🟡 Important
Notices Procedure
How parties give official notices: "All notices shall be in writing and sent by registered post/recorded delivery to addresses stated in this Agreement or as notified." State when notice deemed received: "Notices deemed received 3 business days after posting." Email acceptable if parties agree. Proper notice essential for default notices, acceleration.
🔴 Critical
Amendments & Waivers
State that agreement can only be changed in writing signed by both parties: "No amendment, modification, or waiver shall be effective unless in writing signed by both parties." Prevents oral variations causing disputes. Single waiver doesn't waive future breaches: "No waiver of any provision shall constitute waiver of any other provision or subsequent breach."
🟡 Important
Assignment Rights
State whether lender can assign/transfer loan to third party (e.g., sell debt): "Lender may assign its rights under this Agreement without Borrower's consent" or "Lender may not assign without Borrower's prior written consent." Typically, borrower cannot assign obligations. Assignment affects who borrower repays and enforceability.
🟡 Important
Entire Agreement Clause
State this written agreement is complete agreement superseding all prior discussions: "This Agreement constitutes entire agreement between parties and supersedes all prior agreements, understandings, or representations." Prevents claims based on pre-contract statements. Parties cannot rely on verbal promises - only written terms enforceable.
🟡 Important
⚡
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Next Steps
Now that you've reviewed the compliance checklist, you have three options:
✅ Use Our Ready-Made Template (Recommended)
Save hours of legal research and drafting. Our professionally-crafted loan agreement covers all 54 compliance points with legally-sound wording. Available in both Interview Mode (guided questions) and Editor Mode (direct editing) for just £10. Includes interest calculations, repayment schedules, security provisions, and default procedures.
📝 Draft Your Own Procedure
Use this checklist as your guide, but remember: getting the legal wording correct is complex. Consumer Credit Act compliance, interest calculations, security documentation, and default procedures require precise language. A single drafting error can make your loan unenforceable or create tax complications.
âš–ï¸ Book a Legal Consultation
For large loans, complex security arrangements, or business lending facilities, consider booking a consultation with our legal professionals for personalized advice tailored to your specific circumstances.