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What is a loan agreement? It is the arrangement whereby one party, the lender, provides a sum of money and the other party, the borrower, undertakes to repay the same amount. Legally, this is called a loan for consumption; the rules are set out in Article 7:129 and subsequent articles of the Dutch Civil Code. In the agreement, you specify the principal amount, interest, repayment, term, enforceability, and any collateral. The loan can be for business or private purposes, for example between companies, within the family, or from a director-major shareholder to their own private limited company.
The short answer
- What: Agreement regarding a borrowed amount and its repayment.
- Law: loan for consumption, regulated in Article 7:129 et seq. of the Dutch Civil Code.
- Parties: lender (money provider) and borrower (borrower), business or private.
- Core: principal, interest, repayment, term and enforceability.
- Security: optional pledge, mortgage, or surety.
What exactly is a loan agreement?
A loan agreement is a form of loan for consumption. According to Article 7:129 of the Dutch Civil Code, the lender undertakes to provide a sum of money and the borrower to repay the same amount. Since 2017, this has been a consensual agreement: it comes into existence through the agreement itself, not merely at the moment the money is actually transferred. Legally, a loan also exists without a written document, but proving it afterwards is difficult.
Recording in writing therefore primarily serves as proof. In the event of disagreement regarding whether a loan or a gift was involved, or concerning the agreed interest rate, a signed document is decisive. This is especially important for business loans and loans within the family, as the Tax Authorities and the courts look at the actual agreements.
Interest and repayment
Interest is only due if agreed upon. Without an interest clause, the loan is in principle interest-free, apart from the statutory interest, which only accrues if the borrower pays late (Article 6:119 of the Dutch Civil Code). For business loans and loans to or from one's own BV, a commercial interest rate is important: the tax authorities expect conditions that would also apply between independent parties.
When repaying, choose a form that suits you. A linear repayment (a fixed portion of the principal each period), an annuity (a fixed total amount of interest and principal combined), or a lump sum repayment at the end of the term. Specify when repayments will be made, whether early repayment is permitted, and whether there is a fee for doing so.
Term and enforceability
The term determines how long the borrower has access to the funds. If no end date has been agreed upon, a termination arrangement with a reasonable notice period applies (Article 7:129 et seq. of the Dutch Civil Code). For clarity, a concrete end date or a repayment schedule is always preferable.
The enforceability clause regulates when the lender can recover the entire remaining balance at once. It is customary to include an enforceability clause that makes the loan immediately callable in the event of, for example, payment arrears, bankruptcy or suspension of payments by the borrower, or the sale of pledged collateral. Without such a clause, the lender cannot simply demand the full amount before the term has expired.
Collateral and consumer credit
For additional security, parties may agree on collateral. The best-known forms are a pledge on movable property, a mortgage on pledged assets, and suretyship, whereby a third party undertakes to pay if the borrower fails to do so (Article 7:850 of the Dutch Civil Code). Without security, the lender is simply an unsecured creditor in the event of default.
Be aware if a company lends money to a consumer professionally. In that case, stricter rules under the Financial Supervision Act (Wft), the successor to the Consumer Credit Act (Wck), apply. These include a licensing requirement from the AFM, information obligations, a creditworthiness assessment, and a maximum credit fee. These rules do not apply to a standard business loan or a loan within the family.
Practical example
A director-major shareholder lends €60,000 to his own private limited company for the purchase of machinery. They agree on a commercial interest rate of 5 percent, linear repayment over five years, and an enforceability clause in the event of arrears. Because the terms are business-like and in writing, the Tax and Customs Administration recognizes the loan as a genuine loan and not as a disguised capital contribution or dividend.
Honest recommendation
For a simple loan between parties who trust each other, with a clear amount, a fixed interest rate, and a clear repayment schedule, you do not always need a lawyer. Neatly document the principal, interest, repayment, and enforceability, and the foundation is in place. However, do engage a lawyer for larger amounts, involving collateral such as a pledge or mortgage, for loans to or from your own private limited company, and certainly if you lend to consumers commercially. In such cases, the details and legal regulations determine whether the loan holds up.
You can read more or have it arranged immediately via the loan agreement, or via drafting a loan agreement and having a loan agreement drafted.
Frequently Asked Questions
An agreement whereby the lender provides a sum of money and the borrower undertakes to repay the same amount. Legally, this is called a loan for consumption, regulated in Article 7:129 et seq. of the Dutch Civil Code. The contract specifies the principal amount, interest, repayment, term, enforceability, and any securities.
Legally, a loan exists even without paperwork, but documenting it in writing is advisable for evidentiary purposes. In the event of disagreement regarding interest or whether it was a loan or a gift, a signed document is decisive, especially within the family and for loans to one's own private limited company.
Interest is only due if agreed upon; without an interest clause, the loan is in principle interest-free. However, statutory interest does accrue in the event of late payment (Article 6:119 of the Dutch Civil Code). For business loans and loans to one's own private limited company, the tax authorities expect a market-rate interest.
That the lender can reclaim the entire remaining balance at once. With an enforceability clause, the loan becomes immediately callable in the event of, for example, payment arrears or the borrower's bankruptcy. Without such a clause, the lender cannot simply demand repayment of the full amount before the end of the term.
The best known are pledges on movable property, mortgages on pledged assets, and suretyship (Article 7:850 of the Dutch Civil Code), whereby a third party pays if the borrower fails to do so. Without security, the lender is simply an unsecured creditor in the event of default.
Yes, if a company lends to consumers professionally. In that case, rules from the Financial Supervision Act (Wft), the successor to the Consumer Credit Act (Wck), apply: a licensing requirement with the AFM, information obligations, a creditworthiness assessment, and a maximum credit fee.
Yes, that happens often. In that case, establish a commercial interest rate, a repayment schedule, and an enforceability clause. This way, the Tax Authorities recognize the loan as a genuine loan and not as a disguised capital contribution or dividend distribution.
