5 things you need to know about Loans
- 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’s important that the loan agreement, and any security documents, are drafted in way which works for both parties.
- The most important document in a loan transaction is the loan 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 then the lender can take possession of the assets in order to repay the debt.
- The lender will generally try and ensure that the loan is secured, and is uncommitted (meaning the lender isn’t required to actually 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.
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