We review and draft loan agreements for individuals or companies lending or borrowing from family or friends. We can offer protection around loan agreements for unsecured loans or secured loans and related charges taken as security drawing on years of experience.
We are always happy to provide a quote and initial thoughts on a loan agreement. Please do call us to discuss your concerns. We have a good track record.
Reasons for picking us
We are a specialist law firm focused on SMEs, investors, directors and families.
- We are set up to deliver a quick service to meet pressing demands.
- We act for lenders or borrowers and have the expertise to handle family loans including security for loans and charges over assets such as commercial property.
- We are experienced in the legal, commercial and tax aspects of inter-company loan agreements.
- We provide cost effective advice on many forms of loan agreement including loans to family or friends, bank loans, corporate and business loans, secured or unsecured loans, structured loans, disputes over loan agreements, employee loans and director loans.
- We act for act for many different types of businesses. Many come to us as they are tired of overcharging by large law firms.
Agreement for loan – terms
A typical loan agreement sets out the terms on which a lender will provide financing for the borrower and the parties should consider whether to include the following terms:
These are pre-funding conditions which a lender wants to see satisfied before agreeing to release funds.
The parties should consider whether interest is payable on the loan being made and if so what the rate should be. There can be FCA implications as explained below.
Repayment and pre-payment terms
The parties should consider how and when the loan is to be repaid and whether the borrower is entitled to make any voluntary prepayments.
A lender often requires protection in the form of indemnities (which is a promise by the borrower to pay to the lender on a pound-for-pound basis on a particular type of loss arising). For example, if there is an event of default (please see further comments below).
Representations or warranties under part of the loan terms
Representations or warranties – these are statements of current or past fact (or law) and operate to flush out information at the start of the transaction. Lenders use representations to limit their lending risk.
Financial covenants in corporate loans
The objective of financial covenants is to define in financial terms the parameters within which a borrower may operate its business. They provide:
- an objective assessment of change to a borrower’s financial position;
- the means of monitoring the borrower’s financial position on a regular basis;
- an early warning of potential financial difficulty for a borrower;
- a means of imposing financial discipline on a borrower.
Events of default
Typically, a lender does not have an inherent right to demand early repayment of a loan. Therefore, the facility agreement needs to specify circumstances or events that, if they were to occur, would give a lender that right. These circumstances or events are usually called events of default and will vary for individual transactions and will need to be tailored and negotiated as appropriate. They are usually heavily negotiated.
Security for lending
Typically, a lender agrees to lend to a borrower if it is provided with sufficient security for the loan. If security is provided, the loan is known as a secured loan and the loan can be secured against, for example, property of a borrower (in the form of a legal charge), or business and assets of the borrower (in the form of a debenture), which then becomes a secured debt owed to the lender.
Registering the charge at Companies House
To secure a loan you may wish to consider creating a charge and registering that at Companies House. A charge registered at Companies House tells the world that a lender has rights. It is not just banks and building societies who can register charges – private individuals and companies can as well.
We can register new charges and analyse if there are existing charges that will water down the effect of your charge by taking priority.
Default under a loan agreement
If a borrower defaults on a loan and is unable to repay it whether in full or in part, the lender may seek to enforce the security that it has taken if these are reserved as part of the investment terms.
Alternatives to loans
You want to lend money to a business but you are not convinced of its financial viability or stability, how can you secure and protect your interests?
There may be a number of alternatives to consider.
Third party guarantee and indemnity
Third parties can also guarantee and indemnify lending, where a third party (usually connected to the borrower, a sister company, parent company or connected individual) guarantees their personal assets and promises to pay where the borrower fails. Guarantees and indemnities will impose restrictions on the guarantor personally.
Equitable charge over shares
People sometimes overlook that it is possible to take a charge over shares. The charge can extend to any shares be they in the borrower or in a director’s portfolio. This could be helpful for companies with assets such as commercial property.
Personal guarantees can achieve security in private lending if the director/shareholder has personal assets that can be secured against.
If you need a loan agreement drafted, unsecured or secured, simple family loan or complicated business loan contract, please do get in contact for fee information. We also assist with reviewing or advising on loan agreements offered or disputes over loan agreements.