Most business finance paperwork is fairly long, it has a number of clauses and more than it’s fair share of small print. Once you add into that the various conditions, covenants and the security you need to provide then the whole thing can be difficult to understand properly.
So what should you do?
There is an old Indian proverb, it goes something like this;
A man wanted to be taller, he prayed to god every day for 10 years. Finally god answered him and agreed to make him 3 inches taller. God said their would be a price, that for every inch taller the man would lose 5 years of his life expectancy. The man agreed, then immediately dropped dead
The moral being, do not agree to anything unless you know the detail.
Business finance should be treated in much the same way.
What Are The Business Finance Essentials Then?
Let’s make a couple of assumptions here;
- The majority of commercial loan agreements are 90% the same for every customer, they are standard paperwork
- You will need to give a few things to get any loan. The minimum being to repay a rate of interest and pay a fee
The majority of any loan form is non negotiable, only the finer detail is up for negotiation so concentrate on what this detail requires of you.
The main thing to look out for is;
- Any page in the paperwork which says ‘Special Conditions’, ‘Additional Matters’, ‘Covenants’, ‘Security’ or something along these lines
If you can find this then ask questions around everything on these pages, it is likely that the devil in the detail will be here somewhere.
If you are going to ask questions over the detail in your business finance agreement then these are some good things to ask;
- What clauses in this loan agreement have been asked for by your credit approver?
- Does the interest rate stay at this level for the entire period of the loan, regardless of what happens?
- Exactly what security am I providing?
- Explain to me what stipulations I am committing myself to by signing
Make sure that if you ask any of the above then make a note of what was asked and what was said, keep it with your loan paperwork.
“We Recommend Independent Legal Advice”
Often commercial lenders will ask you to take legal advice before signing any finance agreement. This is fair enough, but any legal advice comes at a cost. Also, any legal advisor will bear on the side of caution, in other words in terms of risk the best thing you could do is simply not sign the agreement.
However, not signing means no loan, which was the whole idea in the first place. So, if you are taking legal advice then expect to be going against what you are advised.
The other thing about taking legal advice when signing a business finance agreement, is to make sure your legal eagle knows about funding. Don’t ask a conveyancing expert about commercial funding agreements. Sounds simple but you would be surprised…
Finance Agreements Are A Negotiation
Remember this. Any commercial lender will have a ‘window’ of interest rate variance, they will also be up for talking about fees and some of the finer terms.
This doesn’t mean that your lender will simply reduce costs and remove terms, oh no… But, they are up for negotiation, so prepare what you are willing to give to get what you want. Offer something in return and you should be able to get a better deal.
I hope the above helps when you are next looking at a business finance agreement. If you want to run your agreement past someone then get in touch and this can be done, gratis of course.
As always, please leave your comments below.
By Dave Farmer