Main Objective

To formalize the owner’s capital injection as a properly documented, interest-bearing, and collateral-backed loan, ensuring the business treats it as debt rather than equity—thereby protecting the owner’s investment and preserving clarity for future financing.

Key Goals

1. Draft a Clear Loan Agreement

• Specify principal amount, interest rate (e.g. prime + 2–4%), term, repayment schedule, and prepayment rights.

1. Establish Security

• Take a first-ranking charge over specified company assets (e.g. equipment, receivables, IP) and, if appropriate, secure a personal guarantee.

1. Define Default & Remedies

• Lay out default triggers (missed payments, covenant breaches) and the lender’s rights (acceleration, enforcement of security, late‐payment penalties).

1. Standardize Documentation & Covenants

• Implement naming conventions for repayments, require periodic financial reporting, and prohibit additional secured debt without lender consent.

1. Optimize Tax & Accounting Treatment

• Ensure interest payments are tax-deductible for the company, comply with related-party transaction rules, and maintain clean audit trails.

Legally Binding Loan Structure

• A fully executed loan agreement that treats the owner’s capital injection as debt, with clear terms and enforceable provisions.

Improved Financial Clarity

• The business’s balance sheet will reflect the owner’s funds as a liability rather than equity, simplifying future financing or sale scenarios.

Enhanced Creditworthiness

• By formalizing and securing the loan, lenders and investors will have greater confidence in the company’s governance and collateral package.

Tax & Accounting Compliance

• Interest payments will be correctly coded and deductible, related-party rules observed, and audit trails established for both internal and external review.

Operational Governance

• Defined covenants and reporting requirements ensure the company maintains healthy financial controls and keeps the owner informed.

Key Deliverables

1. Loan Agreement Package

• Signed shareholder/director loan agreement (PDF) including: principal, term, interest rate, repayment schedule, prepayment rights, default/remedy clauses.

1. Security Documentation

• Collateral documents (e.g. UCC-1 financing statement or local equivalent) registering the lender’s first-ranking charge over specified assets.
• Personal guarantee form (if elected).

1. Replication-Ready Templates

• Editable Word drafts of the loan agreement and security documents for future use or amendment.

1. Repayment & Amortization Schedule

• Detailed Excel schedule showing payment dates, interest vs. principal breakdown, and remaining balance over the loan term.

1. Accounting & Tax Memo

• A short memo (Word/PDF) outlining:
• How to record journal entries for disbursement and interest expense
• Tax treatment of interest payments
• Any transfer-pricing or related-party reporting considerations

1. Compliance Checklist & Reporting Calendar

• A one-page checklist covering: covenant tests, required financial reports (e.g. quarterly P&Ls, balance sheets), and filing deadlines for security interests.

1. Handoff Presentation

• A brief slide deck (PowerPoint or Google Slides) summarizing the structure, next steps, and responsibilities—ideal for an internal review or board meeting.