HomeFWJ TakeawayUnderstanding your loan agreement – a funder’s perspective

Our banking and finance team at Francis Wilks and Jones frequently assists funders in arranging facility documentation with borrowers. We act for a wide range of funders, banks and finance companies. We advise on anything from standard business loans, start up loans, small business loans, unsecured business loans to more complex structured finance transactions. Whatever your needs, we can assist you.

We have outlined some of the key loan contract terms from a funder’s perspective. The financier will want to incorporate these clauses in to the loan agreement to provide it with the protection it requires, for example in the event of default by the borrower:

  • margin protection – if the cost of borrowing rises, the financier will want to pass on the increased costs to the borrower. Well drafted margin protect clauses allow it to pass these additional costs on to the borrower in order to maintain the income margin contracted for at the outset;
  • fees – the financier will want to ensure that the agreement lists out clearly the fees it will be charging for the business loan. These could include (but are not limited to) any of the following: arrangement fees, commitment fees, agency fees, cancellation fees, non-utilisation fee, audit / monitoring fees and underwriting fees;
  • costs and expenses – A financier will generally ask the borrower to pay for incidental costs to arrange and run the business loan, such as the preparation and execution of the finance documents and the registration of any charges. A borrower will usually agree to indemnify the lender for these costs under the terms of a well drafted business loan agreement;
  • remedies and waivers – The business loan agreement should contain the clauses which state that the financier should not be limited to using one remedy when it has more than one remedy available to it and the financier’s rights under the agreement should not take the place of any rights available to it under general law. Equally if a financier chooses not to do something that it has a right to do that should not mean that it has waived its right to take action in the future;
  • repayment – it is important for the repayment schedule to be clearly set out in the loan agreement in order that the lender knows when it is due to receive its payments. This clause will not be necessary if the loan is an on-demand facility which means the lender can request repayment whenever it chooses.
  • prepayment – this is the right for the borrower to repay the loan early. The financier / lender will only want to allow this if certain conditions are satisfied. The lender may draft in a provision for a prepayment fee which it will be entitled to charge to the borrower;
  • cancellation – for facilities which have a commitment fee charge, the borrower may not need to draw upon the full amount of the facility. The loan agreement may allow the borrower to cancel part of the commitment in this circumstance. The benefit to the borrower is that it does not pay a non-utilisation fee on money it no longer requires. The lender, however, will want to ensure that it can charge a cancellation fee to the borrower to make up for the loss of interest or non-utilisation fees it would otherwise have been able to charge;
  • events of default – the Lender will want protect its interests in the event that the borrower does not keep up with loan payments or otherwise breaches the facility. This clause in particular should be clear and well drafted.

Whatever the nature of your enquiry, Francis Wilks & Jones has a leading team of commercial finance solicitors to help you with your finance agreement and supporting security documentation. We have broad expertise in drafting all types of finance facility documentation including standard business loan agreements, start up business loans, secured business loans, unsecured business loans, and other types of more complex structured financed facilities.

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