If your company needs to borrow money then, whether it’s coming from a bank, a venture capitalist or a private lender, they’ll all want to make sure that, if things don’t work out as planned, they’ve got the best chance to recover their money first, if there is any left, before the unsecured ordinary creditors.
The lenders will seek to do this by taking security over any assets the company has, such as a fixed legal charge over its Property (as in land and buildings), if it has any, and a fixed and floating charge (often called a debenture containing such) over everything else. These documents are not typically open to much, if any, in the way of negotiation but we can represent you during this process and assist with the execution of the documentation and preparing the related authorising board minutes. If there are any existing securities in place with other lenders then these will need to be regulated as to which security takes priority and again this is something we can help with through a Deed of Priority.
Monies lent to companies are typically recorded in a facility letter or loan agreement and there is usually some scope in these documents for the borrower to input as to the terms.
Unfortunately, lenders will often seek personal guarantees from the principals behind small and medium-sized businesses. If at all possible, these should be resisted but, the harsh reality is, that the lender will probably not lend unless the principals (the directors and shareholders) are prepared to step in take personal responsibility for repayment of monies lent. This has the effect of circumventing the protection of limited liability which is one of the main reasons for operating through a limited liability company. At least so far as lenders to whom personal guarantees have been granted are concerned, they can go after the guarantors to recover any monies not repaid by the Company.
The grantor of a guarantee should carefully consider whether or not to accept an offer of finance conditional on the granting of a personal guarantee and, if they do, they ought to be aware of the consequences of personal liability and what could happen if the guarantee is called upon. All the assets of the guarantor, including their homes (whether a separate mortgage or charge is granted in support of the guarantee or not) will be at risk and, if necessary, they will need to be sold to produce the funds needed to settle the liability under the personal guarantee and the associated costs. If there are insufficient funds to pay the lender the monies due under the personal guarantee then the guarantor runs the risk that the lender could petition for their bankruptcy.