Banking and Finance

Your ability to negotiate the terms of a loan will depend on a range of factors, including the type of borrower and lender, the size of the loan, what it is to be used for and what security is available, if any. Key terms our solicitors can advise on include:

• Terms sheet (Heads of terms)
• Interest rates
• Repayment profiles
• Fees and early repayment charges
• Financial and other covenants
• On demand loans
• Loans subject to events of default
• Levels and nature of security

Our banking lawyers frequently advise on whether term and conditions can be negotiated and whether there is value in doing so.

Most loans are secured, as opposed to being unsecured. Security provides priority to a lender over unsecured creditors of a borrower if the borrower is unable to pay its debts.

Lenders frequently require guarantees from parties and persons other than the borrower whether the loan is secured or unsecured. There are many types of guarantee depending on the party or person giving the guarantee and what type of loan or liability is being guaranteed.

As well as lenders and financial institutions requesting guarantees in exchange for providing loans, our banking lawyers advise many financial institutions on providing guarantees, bonds and other types of similar instruments on behalf of businesses.

There are also many types of security depending on the assets or assets of the borrower being secured with security over property being the most common, and security over a security perhaps the most unusual. A debenture is typical security over all the business and assets of a company.

Once an asset is secured by the appropriate security document, the borrower is usually free to continue to use the asset but not to sell it without repaying the loan. If the loan cannot be repaid in accordance with the loan agreement the asset would usually be sold under the terms of the security document to repay the loan.

Our banking and finance lawyers regularly arrange security for loans in the form of debentures over the business assets of the borrower, as well as negotiating mortgages and fixed and floating charges. Many transactions involve directors giving personal loans or granting security over business assets, including intellectual property.

Businesses and individuals tend to borrow from a range of sources. Intercreditor agreements are often made between different lenders who have all provided loans to the same borrower and/or have the same security from the relevant borrower.

An intercreditor can deal with various matters between the creditors as well as the flexibility the borrower and security providers have to change the terms of its loan and security arrangements with any of the lenders.

Without such matters being agreed in writing disputes often arise if eg one lender is repaid ahead of all other lenders or a lender with little or no security takes enforcement action against the borrower when the lender with the largest loan may not want this to happen.

With the risk of disputes if an intercreditor is not signed between the parties, these agreements frequently require expert advice which our banking and finance lawyers can assist with.

Our banking lawyers regularly advise lenders and borrowers on what to do if there is a payment or other default under a loan agreement (or there is about to be such a default).

Unsurprisingly, the advice is different depending on who is our client however we understand both “sides” so we can quickly recommend commercial solutions if the business is solvent.

If the business is insolvent, or may become insolvent, we would bring in colleagues from the necessary departments to advise on matters such as insolvency procedures to minimise losses to lenders and borrowers as the case may be, dealing with other creditors, disputes, employment rights and directors duties.

Lending to family and friends is an attractive option for many clients.

Short straightforward loan agreements with only essential terms are possible if that is acceptable to both lender and borrower. Such a loan agreement by its straightforward nature will cover the essentials nevertheless avoid the most common disputes if a loan arrangement is not recorded in an enforceable agreement.

Consideration and advice will be required on the key terms of the loan and whether a guarantee and/or security is required for the lender.

For the lender to also consider – do I have the choice of making the loan in my personal name or from a company that I own? Is there a choice of lending to the borrower in their personal capacity or to their company?

Whilst the loan agreement is straightforward, expert advice is required depending on the specific parties involved and whether the loan is to be used to buy a property.

Formal documentation is also advisable where you are charging interest on the loan – you may have to prove the loan’s existence to HMRC, and it may have an impact on your overall tax position. Caution is also advised where the borrower is putting any personal property up as security for the loan. Our banking lawyers work closely with the business tax team to give clients the best advice in respect of their own circumstances.