Loan Agreements: Even Between Friends, Put It in Writing
Loan Agreements
A loan agreement in German law is the temporary transfer of fungible items – unlike a lease, you do not expect to get back the same items, only equivalent ones. That applies to eggs borrowed from a neighbour or money from a bank: you do not return the exact same notes. And because banks charge interest on loans, the German word for rent (Mietzins) and for loan interest (Darlehenszinsen) share the same root. The two arrangements are closely related; they just differ in what comes back.
The difference from finance leasing is that in leasing the asset itself is transferred for use, not the money to finance the purchase.
Every loan agreement should specify: principal amount, interest rate, term, and repayment schedule. Leave any of these open and the statute decides – and interest is not owed automatically. A missing term makes the loan terminable on notice, on terms set by the BGB.
Consumer loan agreements are subject to specific formal requirements.
Court Rulings on Loan Agreements
The following Federal Court of Justice (BGH) rulings deal with loan agreements (this list is still very incomplete):
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- Paid off your loan in Germany – can you still cancel it? Auto Loan Agreement Contract Exit
Shareholder Loans and Arm’s Length
Loans between a shareholder and their GmbH are common – and commonly underthought. The tax authorities look closely: interest rate, term, and repayment terms must reflect what unrelated third parties would agree. Lending your GmbH money interest-free risks classification as a hidden contribution. Borrowing interest-free from your GmbH risks classification as a hidden profit distribution. Both have tax consequences that quickly outweigh the original benefit.
Limitation
Loan claims expire three years after the end of the year in which the claim fell due and the creditor knew about it. Anyone who receives a demand on an old claim – or wants to enforce one – should check this first.
Insolvency of the Borrower
If you have made a loan and the borrower becomes insolvent, you are an unsecured creditor. What you recover, if the insolvency estate has nothing, depends on whether and how your claim is secured.
For shareholder loans, a subordination (Rangrücktritt) is often required: the shareholder agrees to rank their claim behind all other creditors. This protects the GmbH from insolvency and the shareholder from wrongful trading liability. In practice, the shareholder usually sees nothing.
If you have supplied goods on payment terms, you are also lending. An extended retention of title clause can give you better protection. See Sale of Goods for more.
Template: Private Loan Agreement
If you lend money to a friend or family member, document it in writing. Not out of distrust, but so that what was agreed is clear later.
This minimal template covers straightforward private loans. For loans with security interests, between shareholder and GmbH, or with tax implications, this is not enough. I am happy to help with individual drafting.
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