5 things you
need to know
about
Banking, Finance and Fintech
- Businesses lend and borrow money regularly. Business loans can be simple or complex. The interests of the borrower and the lender are very different, and it is important that the loan documentation, and any security documents, are drafted in a way that works for both parties.
- The most important document in a loan transaction is the loan agreement (or facility agreement). A loan agreement sets out the obligations of both the lender and the borrower. The most important clauses in a loan agreement relate to the amount borrowed, the repayment schedule, the interest rate and the type of security to be granted.
- There is a big distinction between a secured loan agreement and an unsecured loan agreement. Securing a loan means taking security over some or all of the assets of the borrower. If the borrower does not make the required repayments under the loan agreement, the lender can take possession of the assets to repay the debt.
- The lender will generally try and ensure that the loan is secured and uncommitted (meaning the lender is not required to lend the money). The borrower will seek to ensure that the loan is unsecured, if at all possible.
- The type of security granted will depend on the loan. A general security agreement is a common form of security which grants security over all of a company’s assets. If the loan is specific to a certain piece of equipment, a charge might be more appropriate. In Australia, security can be “perfected” via registration through the Personal Property Securities Register (PPSR).
