Internal Loan Agreement Template for the United States

An Internal Loan Agreement is a legally binding contract that governs lending arrangements between related business entities within the United States. This document establishes clear terms for financial transactions between affiliated companies, ensuring compliance with federal tax laws and state regulations while maintaining proper corporate governance standards.

When do you need this document?

You need an Internal Loan Agreement when your parent company lends money to a subsidiary, when sister companies engage in intercompany financing, or when you're providing short-term working capital between related entities. This document is essential for acquisitions where the parent company finances the purchase through an internal loan structure, debt restructuring within corporate groups, and establishing revolving credit facilities between affiliates. You'll also require this agreement when converting informal advances into formal loan arrangements or when external auditors require documentation of intercompany transactions.

Key legal considerations

The most critical consideration is establishing arm's length interest rates that satisfy IRS requirements under Section 7872 to avoid imputed income tax consequences. You must include specific repayment terms, security arrangements if applicable, and default provisions that protect both the lender and borrower entities. The agreement should address subordination clauses if external debt exists, as this affects creditor priorities in bankruptcy situations. Consider including cross-default provisions that trigger acceleration if either party defaults on external obligations. Documentation requirements under the Truth in Lending Act may apply depending on the borrower's classification, and you must ensure compliance with the Equal Credit Opportunity Act's anti-discrimination provisions.

Legal requirements in United States

Under federal law, Internal Revenue Code Section 7872 requires that loans between related parties carry interest rates at or above the applicable federal rate to avoid imputed interest taxation. The Securities Exchange Act may apply if the loan arrangement could be classified as a security, requiring additional disclosure obligations. State usury laws set maximum permissible interest rates and vary significantly across jurisdictions, making it essential to verify compliance in your specific state. The Dodd-Frank Act imposes additional requirements on financial institutions that may affect larger corporate lending arrangements. You must maintain proper documentation for accounting purposes under Generally Accepted Accounting Principles (GAAP) and ensure the agreement supports the intended tax treatment of interest payments and deductions.