Demand loan

A buyer financing a small business purchase can meet this term in a loan offer or a credit agreement. BDC describes a demand loan as one the lender can ask to be repaid in full or in part at any given time and for a variety of reasons, on short notice. It adds that such a loan can be secured by collateral, such as land, buildings or equipment. See the guide on financing a business acquisition.

Demand and non-demand loans

BDC says the main difference is that a non-demand loan cannot be called without due cause. It gives examples of due cause: providing false information to the lender, bankruptcy, insolvency, or using the funds for purposes not agreed in the contract. BDC also quotes an adviser who says most business loans on the market, whether a mortgage, a line of credit or a term loan, are technically demand loans. BDC’s page on covenants adds that for a more serious breach, or where the company fails to take corrective action, the lender can decide to call in the loan.

What to ask

• Is this loan on demand or non-demand, and where does the agreement say so?
• If it is non-demand, what does the agreement treat as due cause?
• How much notice must the lender give before it requires repayment?
• How does it relate to the events of default in the same documents?