Financing

Further information…

Financing helps you to grow your business (or keep it afloat in difficult times). We can work with all sorts of finance providers to put the necessary security in place and help you gain access to funds.

Consider whether you have:

• Sufficient facilities to secure required cashflow? Are these on-demand or term loans (and if term loans, how easily can the funder ‘wriggle out’ of them)?
  Many facility agreements will contain a long list of ‘events of default’ which allow the Lender to increase the interest rate charged and/or terminate a term loan early (overdrafts will almost always be ‘repayable on demand’ in any case). These will often trigger on what are commercially tiny breaches (for example providing management accounts a day late) or be so widely drafted that almost any excuse can be used to ‘pull the rug’ – for example any matter which the Lender thinks amount to a ‘material adverse change’ in your circumstances or in your sector or in the economy generally. It’s important to seek ‘grace periods’ that start only after you have received notice of breaches and give you time to correct an issue before it triggers default (for example when a payment isn’t paid through overnight or bank error or the provision of financial info is accidently overlooked) and to ensure that any material adverse change clauses are removed or at least qualified by reasonableness and related to a material increase in your likely future default.
• Other things to pay special attention to in facility documents are fees (especially payment of any legal or admin costs or future fees which should be clarified with the relevant lender if at all unclear) and financial covenants and how they are checked/enforced. For example you wouldn’t normally want the lender to be able to insist on a valuation of your property (which you will pay for) more than once in any 12 month period (unless the facility is for property development funding of course when there will be specific provisions for certification by surveyors triggering release of staged drawdowns).
• Need of invoice discounting/asset finance/loans from pension funds or similar non-Bank facilities. We’re seeing more and more deals and general cashflow finance move away from classic big Bank overdraft or term loan lending towards alternative and second tier lenders. Borrowing from SIPPS is common but is an area hedged round with protections (enforced by the professional trustee – the most well-known of which are that you can only borrow half the value of the pension fund, any lending must be secured by a first charge over an asset of appropriate value and that the maximum term of loan is five years). It’s quite common for the professional trustee to ask your lawyer to draft the facility and security documents, so it’s important to have a lawyer who is familiar with borrowing from SIPPS.
• Invoice discounting (and its sister arrangement factoring which involves a formal legal assignment of book debts) is also very common and quite a technical area. The two main commercial choices are who takes the risk of book debts going bad (if it’s the lender the cost is higher and they will interfere more at the stage of your giving credit) and whether the arrangements are disclosed or undisclosed to the debtors. Invoice discounting facility/factoring agreements are specialist documents that usually require careful checking and explaining for a non-accountant or lawyer to follow.
• Asset finance tends to be more straightforward but is usually only available in particular sectors or where the funding is to buy specific plant.
• Taken advice on any relevant facility and security documents (including any personal guarantees or other personal security). Personal Guarantees and Indemnities (PGs) (every guarantee is both in practice although technically they are different things) need to be very carefully checked for the obvious reason that they expose the assets of the individual signatories to personal risk for other’s borrowing. They may secure all monies or just specific loans; they should be terminable on notice (freezing liability at whatever amount is due to the lender on the termination date). Best practice is for all PGs to be capped at a given amount (excluding interest and costs). Only fully-involved directors can waive independent legal advice – everyone else needs to take it before a lender will accept their PG. The default position is that all PGs (and all other security) taken will be cumulative, so if ‘replacement’ security is to be given by you make sure it is replacement and not additional and get a written release of the old PGs/security at the time you sign the replacement.
  
• We also are fully conversant with drafting, advising upon and registering legal charges, company debentures, chattel mortgages and other items of fixed and/or floating security. We also draft and review inter-creditor deeds/deeds of priority that will often be required to rank lenders as between themselves when more than one of them holds security, and deeds of subordination when a lender insists lending from others (usually from directors or other connected parties) is left in the company until that lender’s debt is repaid.
• Documented inter-company/connected party loans.  This is where parties within the same Group (or individuals connected with companies) lend money to them. Especially if there is any split in ownership of the companies, it will be sensible to make sure these loans are properly documented. We have short-form loan agreements of a few pages which can do this in a simple yet legally correct way. Usually we would liaise in this regard with your accountants to make sure the documents reflect the position shown in the accounts.
• Removed defunct or historic corporate and personal security. Often defunct security remains shown as ‘outstanding’ at Companies House because you have forgotten to remove it. This could affect how third parties view your credit-worthiness. You can quickly check any security registered (and other information about your company) for free on the new Companies House beta website here.