Demand Loan Agreement Template for Canada

A Demand Loan Agreement provides you with the legal framework to establish a lending relationship where repayment can be required at any time. Unlike traditional term loans with fixed repayment schedules, this agreement gives you maximum flexibility as a lender by allowing you to call in the loan whenever circumstances require it.

When do you need this document?

You need a Demand Loan Agreement when providing short-term financing where you want to maintain control over repayment timing. This is particularly common in bridge financing situations, where borrowers need temporary funding while waiting for other financing to materialize. Family lending arrangements often use demand loans to maintain flexibility while preserving relationships. Business lines of credit frequently operate as demand facilities, allowing companies to borrow and repay as needed. Investment advisors may recommend demand loans for tax planning purposes, as they can help manage timing of income recognition.

Key legal considerations

Your agreement must clearly establish the demand nature of the loan and specify how notice will be given to the borrower. Interest calculation methods require careful attention, as you must comply with federal Interest Act requirements for disclosure and calculation. If charging compound interest, specific disclosure requirements apply. Security provisions need consideration if you're taking collateral, as provincial Personal Property Security Acts govern registration requirements. Default provisions should address both payment defaults and other breaches of the agreement. Consider including acceleration clauses and rights to appoint receivers if secured lending is involved.

Legal requirements in Canada

Federal law requires compliance with the Interest Act regarding interest rate disclosure and calculation methods. Criminal Code Section 347 prohibits interest exceeding 60% annually, including all fees and charges. Provincial Consumer Protection Acts may apply additional disclosure requirements if lending to individuals rather than businesses. Registration requirements under provincial Personal Property Security Acts become relevant for secured demand loans. Provincial Limitations Acts establish time limits for enforcing your rights, typically six years from default. If your borrower declares bankruptcy, federal Bankruptcy and Insolvency Act provisions will affect your recovery rights. Always ensure your agreement specifies the governing provincial law, as requirements vary between provinces regarding consumer protection, limitation periods, and security enforcement procedures.