In short
A facility agreement is the master document for a private lending arrangement, covering the loan limit, drawdown mechanics, interest, fees, covenants and default triggers. It sits above and is enforced through separate security documents such as a mortgage or general security agreement. Private lenders and non-bank financiers use it in place of a bank's standard loan pack.
Why private lenders need their own paper
Bank loan documents are drafted for a regulated, standardised book of business and assume a level of process the parties on a private deal rarely have. A private lender extending money to a developer, a related party, or a business borrower needs a facility agreement built around the actual deal — the security available, the exit, and what happens if the borrower misses a payment or breaches a covenant. We draft these directly for the lender's interests, not as a generic template with names swapped in.
Core mechanics
The agreement fixes the facility limit, purpose, drawdown conditions and repayment structure, whether that's interest-only with a bullet repayment, capitalising interest, or scheduled amortisation. We set default and penalty interest rates carefully — courts will strike down a penalty interest clause that operates as a penalty rather than a genuine pre-estimate of the cost of default, so the drafting needs commercial justification, not just a high number.
Covenants and events of default
Financial covenants (loan-to-value ratio, interest cover), information undertakings and negative pledges give the lender an early warning system before a default becomes unrecoverable. Events of default need to be broad enough to capture real risk — insolvency, cross-default, change of control, misrepresentation — but not so broad that a technical breach forces an unnecessary enforcement decision. We also build in cure periods and step-in rights that match how the lender actually intends to manage the loan.
NCCP Act carve-out and consumer lending
Whether the National Consumer Credit Protection Act 2009 (Cth) applies turns on the purpose of the loan and who the borrower is. Credit provided wholly or predominantly for business or investment purposes to a company, or to an individual who declares that purpose, generally falls outside the NCCP regime. We confirm that positioning in the facility agreement itself, including the business purpose declaration, because getting it wrong exposes the lender to responsible lending obligations and licensing requirements it never intended to take on.
Interaction with security
The facility agreement is only half the picture. It sits alongside the security suite — a general security agreement, specific security deed, mortgage or guarantee — and the two need to be internally consistent on definitions, default triggers and governing law. We draft the facility and the security package together so an enforcement action isn't held up by inconsistent drafting between documents prepared at different times.
Fees, interest and unfair contract terms
Establishment fees, line fees and default fees all need to be structured as compensation for a service or genuine cost, not disguised interest, particularly where the borrower is a small business and the unfair contract terms regime in the Australian Consumer Law and ASIC Act could apply to a standard form contract. We review the fee structure against that lens before the agreement is signed.
What the fixed fee covers
- Facility agreement drafted to the specific loan terms and security package
- Business purpose declaration and NCCP positioning
- Covenant and event of default schedule matched to the lender's risk appetite
- Coordination with security documents for consistent definitions and triggers
- One round of borrower negotiation
Mistakes we see
- Using a bank template without adjusting it for a private, non-regulated lender relationship
- Setting default interest at a rate a court could find to be an unenforceable penalty
- No business purpose declaration, leaving NCCP application ambiguous
- Facility agreement and security documents drafted separately with inconsistent default definitions
- Fee structure that looks like disguised interest and invites an unfair contract terms challenge
Who this is for
- Private and non-bank lenders
- Related-party or family office lending arrangements
- Property developers arranging mezzanine or bridging finance
- Businesses lending to related entities or joint venture partners
Frequently asked questions
- Does the NCCP Act apply to a private loan?
- Only if the credit is provided to an individual for personal, domestic or household purposes, or predominantly for buying, renovating or investing in residential property in some cases. A properly documented business purpose declaration, combined with lending to a corporate borrower, generally keeps the loan outside the NCCP regime.
- Can I set my own default interest rate?
- Yes, but it needs to reflect a genuine pre-estimate of loss rather than operate as a penalty. We draft default interest with commercial justification on the file so it holds up if challenged.
- Do I need a separate security document as well?
- Yes. The facility agreement sets the commercial terms; enforcement against specific assets happens through a mortgage, general security agreement or specific security deed registered on the PPSR or with the relevant land title office.
- What happens if the borrower defaults?
- The events of default clause triggers acceleration of the debt and enables enforcement of the linked security. We build in notice and cure periods appropriate to the deal so enforcement isn't automatically triggered by a minor or technical breach.
- Can the facility agreement be varied later?
- Yes, through a deed of variation, which is common where a facility is extended, increased, or restructured. We draft the original agreement with a clear variation mechanism to avoid disputes about whether an informal extension was validly agreed.
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