Borrowing, Lending & Security

The lender will issue a “term sheet” which covers the principal terms of the loan. The lender’s lawyer then usually issues the draft loan agreement and any draft security documents. The borrower’s solicitor will review and negotiate these documents. Various “conditions precedent” usually need to be met before funds are made available.

A loan agreement will cover the amount being lent, what interest rate is being applied to the loan, whether the loan can be prepaid early, the term of the loan and circumstances when the lender can demand early repayment. The borrower will also usually be asked to give certain warranties (statements of fact) and confirmations about itself and its business.

An overdraft is a form of debt and is repayable on demand. A revolving credit facility allows a line of credit that the borrower can draw down, repay and draw down again. A term loan is taken out for a period of time and either repayable in one go at the end of the term, or repaid over the term of the loan, or both.

“Events of default” will be specified in the loan agreement. These are circumstances which, if they occur, could entitle the lender to demand repayment of the loan. They often include: non-payment of any amounts due under the finance documents, failure to comply with the terms of the finance documents and insolvency events of the borrower.

A lender often asks for security over assets so that, if the borrower is unable to repay the loan, the lender can rely on the security to recoup its money. The security may take the form of a debenture (over all the assets of a company), a legal mortgage over property, a fixed charge over certain assets or a charge over shares. A lender might also ask for personal guarantees.

It depends on the nature of the transaction. On a standard corporate loan facility, we would normally expect documenting the loan and security to take 4-6 weeks. On a more complex corporate lending such as an acquisition finance facility, this could take 8-10 weeks. For a simple loan agreement and security document this could take 3-4 weeks. The timing often depends on a number of factors though, so it can vary.

Yes. We have extensive experience in advising on acquisition finance facilities. These tend to be term loans often with a revolving credit facility as well. We will guide you through the loan agreement and the security documents step by step.

Yes. Where individuals are involved, lending and mortgage arrangements are quite heavily regulated. However, there are exemptions in certain circumstances. We can look at the legal requirements and tell you whether an exemption applies. We have vast experience in advising on these types of private loans and the related security.