Loan agreement: company; secured by guarantee
An agreement between a lender, who may be an individual or a corporate body, and a borrower, who is a company. The loan is secured by a guarantee by a third party - most likely a director.
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About this document
This agreement is for use when the borrower is a company or other corporate body, or a trust.
It is drawn so that lender is also a corporate body, but the lender may as easily be an individual or a trust.
The lender has the security of the personal guarantee of one or more directors. In many cases, a guarantor is much more effective than other types of security because non-repayment risks a relationship and the reputation of the guarantor as well as of the borrower. Another advantage is that, in most situations, the lender only needs to satisfy himself that the guarantor has sufficient assets overall, and therefore doesn’t have to perform detailed valuations of individual items.
The agreement may be for a loan to a family member’s business; by a business angel in addition to equity; or simply an arm’s length investment.
Because the borrower is a company, we have included a number of warranties. These take effect as promises by the borrower as to aspects of its financial state. We have also provided that the signatory accepts personal liability for his proper authorisation. To some extent that person is bound in the same way as the company. All the better if he is a guarantor.
If making sure that you can recover your debt, should the company not repay you, you may also like to secure the loan against the company's more liquid assets such as stock. This agreement gives that option in addition to the guarantee of a director or shareholder.
Important interpretation provisions
Purpose of loan
Amount of loan and how advanced
Interest amount and arrangements
Provision for early repayment
Promise by borrower to make no change to capital structure.
What happens if things go wrong - notices, consequences and so on
An option on possible assignment of the rights and obligations set up under the agreement.
A round up of legal matters
This document was written by a solicitor for Net Lawman. It complies with current English law.
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By Carlos Pacheco 31 May 2016
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