Demand Loan And Term Loan Template for Canada

When your business needs both flexible short-term financing and structured long-term funding from the same lender, a Demand Loan And Term Loan agreement provides the comprehensive legal framework required under Canadian law. This dual-facility arrangement allows you to access demand credit for working capital needs while securing term financing for major investments, all within a single agreement that complies with federal banking regulations and provincial lending laws.

When do you need this document?

You need this agreement when establishing commercial lending relationships that require both immediate liquidity and long-term financing. Businesses commonly use these dual facilities for acquisition financing, where the demand facility provides bridge funding while the term loan finances the permanent acquisition structure. Manufacturing companies often require demand facilities for seasonal working capital fluctuations alongside term loans for equipment purchases. Real estate developers use these arrangements to fund both construction costs through demand facilities and permanent financing through term loans. Growing businesses benefit from demand credit for operational flexibility while using term loans for strategic expansions or capital improvements.

Key legal considerations

The agreement must clearly distinguish between the demand and term facilities, including separate interest rates, repayment terms, and security arrangements for each facility. Interest rate provisions must comply with Criminal Code Section 347's maximum rate requirements and include annual percentage rate disclosures as mandated by the Interest Act. Security provisions must be properly documented under provincial Personal Property Security Act requirements if personal property secures the loans. Default provisions should specify cross-default clauses between facilities while allowing for separate enforcement mechanisms. Guarantee provisions require careful drafting to ensure enforceability against corporate and personal guarantors. The agreement must include comprehensive representations and warranties covering the borrower's financial condition, corporate authority, and compliance with applicable laws.

Legal requirements in Canada

Under the Interest Act, all loan agreements must disclose interest rates as annual percentages and specify how interest is calculated, particularly for compound interest arrangements. The Bank Act requires federally regulated financial institutions to provide specific disclosures and maintain detailed loan documentation standards. Provincial Consumer Protection Acts may apply additional requirements for individual borrowers, including cooling-off periods and enhanced disclosure obligations. Security interests must be registered under the appropriate provincial Personal Property Security Act to ensure priority against other creditors. Corporate borrowers must provide board resolutions authorizing the loan agreements and confirming signing authority. All agreements must comply with provincial limitation periods for debt collection and include proper notice provisions for demand acceleration under the demand facility.