Business Lending and Legal Obligations

Businesses large and small are currently looking at ways to borrow more to see them through the current lockdown. The recently announced ‘Bounce Back Loan’ scheme helps small and medium-sized businesses to borrow between £2,000 and £50,000. Under this scheme the Government will guarantee 100% of the loan and there won’t be any fees or interest to pay for the first 12 months. The term of the loan will be up to 6 years and no repayments will be due during the first 12 months.

It will be very interesting to see how this scheme progresses with the government saying it will work with lenders to agree a ‘low rate of interest’ (2.5%) for the remaining period of the loan. The scheme will be delivered through a network of accredited lenders with some of the big banks already marketing this scheme. Of significant interest is the fact that lenders are not permitted to take personal guarantees or take recovery action over a borrower’s personal assets (such as their main home or personal vehicle).

However, not every business will be eligible and it is worth noting that the borrower remains 100% liable for the debt.

Some businesses will no doubt look to extend existing borrowing from a bank or other lender, or seek alternative forms of investment. Already we are seeing some lesser known organisations move into the market offering funding and there will no doubt be some scams that come to light.

We can also expect that some businesses may decide to look for external investment in their business. Furthermore, as we come out of the downturn we can expect that some businesses may make themselves available for acquisition which could fuel a round of acquisition focussed lending.

All lending arrangements involve a form of contract between the lender and the borrower. Some of the terms can be rather confusing and difficult to understand. The rush for funding should not dilute the attention to the legal detail and obligations contained within the agreement. If business owners are in any doubt they should take legal advice on the contents of the agreements and the implications for the borrower and those who may be ultimately liable for any debt.

For more advice on the legal aspects of lending please contact Sukh Saini:

0800 302 9448

info@pictons.co.uk