Why demand loan matters to a first-time founder
The lender’s right to call the loan can turn long-looking finance into an immediate cash obligation. A business that spends the funds on illiquid assets may be unable to repay when asked. The precise notice, demand and enforcement rules depend on the contract and jurisdiction.
Examples of demand loan
A director lends her company ₦75 million under an agreement repayable on demand. The company uses it for equipment, leaving ₦10 million cash. When the director requests repayment after a dispute, the business cannot produce ₦75 million immediately and must negotiate, refinance or sell assets under pressure.
Common misunderstanding
A demand loan is not necessarily a loan with no terms or no interest. The agreement can set a rate, security and notice procedure while still allowing repayment to be demanded before a fixed maturity. Some jurisdictions restrict when a demand is effective or how enforcement proceeds.
When to use it
Use one only when both sides need flexibility and the borrower could realistically repay or refinance after a valid demand. Define notice, interest, security and events clearly. For long-lived assets, fixed-term funding is usually safer because its repayment date better matches the asset’s useful life.