Debt financing is a method of financing whereby a company borrows money without giving up any ownership of the company. Debt financing often comes with strict undertakings, in addition to having to pay the principal and interest on specified dates. Failure to meet these undertakings can result in severe consequences (including the loan becoming immediately due and payable, and any security becoming enforceable). Furthermore, entering into a lot of debt increases the company’s future cost of borrowing money and it adds risk for the company.

Secured and Unsecured Loans

Debt financing includes both secured and unsecured loans. Security involves a form of collateral as an assurance the loan will be repaid. If the debtor defaults on the loan, that collateral is forfeited to satisfy payment of the debt.

Most lenders will ask for some sort of security on a loan. Few, if any, will lend you money based on your name or idea alone. In an unsecured loan, your credit reputation is the only security the lender will receive. Accordingly you may be able to obtain a personal loan for several thousand dollars, or more, if you have a good relationship with the bank, but these are usually short-term loans with very high rates of interest.

Most lenders are very conservative and are unlikely to provide an unsecured loan unless you have done a lot of business with them in the past and have performed above expectations. Even if you do have this type of relationship with a lender, you may still be asked to post collateral on a loan, due to economic conditions or your present financial condition.

Repayment Terms

Most debt will be subject to a repayment period. There are three types of repayment terms:

  1. Short-term loans are typically paid back within six to 18 months.
  2. Intermediate-term loans are usually paid back within three years.
  3. Long-term loans are paid back from the cash flow of the business over five years or less.


When lending or borrowing money, make sure you enter into a Loan Agreement. A well drafted Loan Agreement will set out the relationship between the lender and the borrower, explain how and when principal and interest is to be paid, contain detailed representations, warranties and covenants from the borrower in favour of the lender, and set out a list of events of default and the consequences of them. This will help avoid future disputes.

If you require a Loan Agreement or have been provided with one and it contains provisions which you are unsure about, please get in touch with us and one of our specialised finance lawyers will be able to assist.

COVID-19 Business Survey
LegalVision is conducting a survey on the impact of COVID-19 for businesses across Australia. The survey takes 2 minutes to complete and all responses are anonymous. We would appreciate your input. Take the survey now.

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.

The majority of our clients are LVConnect members. By becoming a member, you can stay ahead of legal issues while staying on top of costs. For just $199 per month, membership unlocks unlimited lawyer consultations, faster turnaround times, free legal templates and members-only discounts.

Learn more about LVConnect

Jill McKnight
Need Legal Help? Get a Free Fixed-Fee Quote

If you would like to receive a free fixed-fee quote or get in touch with our team, fill out the form below.

  • By submitting this form, you agree to receive emails from LegalVision and can unsubscribe at any time. See our full Privacy Policy.
  • This field is for validation purposes and should be left unchanged.
Our Awards
  • 2019 Top 25 Startups - LinkedIn 2019 Top 25 Startups - LinkedIn
  • 2019 NewLaw Firm of the Year - Australian Law Awards 2019 NewLaw Firm of the Year - Australian Law Awards
  • 2020 Fastest Growing Law Firm - Financial Times APAC 500 2020 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review 2020 AFR Fast 100 List - Australian Financial Review
  • 2020 Law Firm of the Year Finalist - Australasian Law Awards 2020 Law Firm of the Year Finalist - Australasian Law Awards
  • Most Innovative Law Firm - 2019 Australasian Lawyer 2019 Most Innovative Firm - Australasian Lawyer
Privacy Policy Snapshot

We collect and store information about you. Let us explain why we do this.

What information do you collect?

We collect a range of data about you, including your contact details, legal issues and data on how you use our website.

How do you collect information?

We collect information over the phone, by email and through our website.

What do you do with this information?

We store and use your information to deliver you better legal services. This mostly involves communicating with you, marketing to you and occasionally sharing your information with our partners.

How do I contact you?

You can always see what data you’ve stored with us.

Questions, comments or complaints? Reach out on 1300 544 755 or email us at

View Privacy Policy