Revenue Loan Agreement Template for Canada

A Revenue Loan Agreement is a specialized financing contract that allows you to secure business capital through revenue-sharing arrangements rather than traditional fixed payment loans. Under Canadian law, this agreement must comply with federal legislation including the Interest Act and Criminal Code provisions limiting annual effective interest rates to 60%, while also adhering to provincial securities and personal property security regulations.

When do you need this document?

You need a Revenue Loan Agreement when seeking alternative financing that aligns repayment with your business performance. This structure is particularly valuable for companies with strong revenue growth but variable profits, seasonal businesses, or startups that may struggle with fixed debt service requirements. Technology companies with subscription models, e-commerce businesses, and service providers often use revenue-based financing to fund expansion, inventory, or working capital needs. Unlike traditional loans, this arrangement provides breathing room during slower periods while allowing lenders to benefit from your business growth.

Key legal considerations

Your agreement must clearly define what constitutes "revenue" for calculation purposes, including whether to include gross revenue, net revenue, or specific revenue streams. The payment calculation methodology, reporting requirements, and audit rights need precise documentation to avoid disputes. You must ensure the effective annual interest rate complies with Criminal Code limitations and that any security interests are properly registered under your province's Personal Property Security Act. Consider including provisions for payment deferrals during economic downturns, early repayment options, and clear termination procedures. If multiple lenders are involved, establish a security trustee structure and define intercreditor arrangements to manage competing interests.

Legal requirements in Canada

Under the Interest Act, all interest calculations and disclosure requirements must be clearly specified, including the method for computing the annual effective rate. Your corporation must have proper authority under the applicable Business Corporations Act to enter into the financing arrangement, with board resolutions documented appropriately. Provincial Securities Act compliance may be required depending on the structure and whether the arrangement constitutes a security. Revenue reporting obligations must align with Income Tax Act requirements to ensure consistent financial reporting. If providing security, registration under the provincial PPSA protects the lender's interests against third-party claims. The agreement should also address tax treatment implications for both parties under federal and provincial tax legislation.