Too often businesses have loan facilities in place but are unaware of the conditions that sit hidden in the detail.
Business Loan Example
Recently I worked with a client who had a bank loan in place. We were looking at potential expansion and wanted to know what options there were for repaying the loan.
On reading the business loan agreement it became apparent that there was a ‘break clause’ at the 5th and 8th anniversaries of taking out the loan. This meant that in January 2014 the first ‘break clause’ came due.
This meant that the bank could renegotiate the interest cost, or worse still, ask for the loan to be repaid in full.
Now that changes your thinking.
The client thought the loan was a 20 year agreement. Whereas in reality it was a 5 year agreement, then up for discussion every 3 years thereafter.
In this case the business was trading well and things were fairly rosey, however if trading was tough and times were hard then what could the bank have done? Scary that the bank held all the cards, in effect they could close the business in a matter of months.
Even if the bank wanted to get repaid they would need to provide notice to the client. However, the distraction and need to sort things out would have a huge negative impact on the business.
Lime Consultancy can provide guidance on what devil is within the detail of your business loan agreement. To help we have produced a free checklist for you to run through. It is not all encompassing but it is designed to ensure a basic understanding.
Use the flowchart then if you are not sure of anything then give Lime Consultancy a call on 01293 541333.
Download the business loan flowchart here – Resource – Loan Checklist and please use it to help your business.
If you have any comments then click the ‘reply’ button above, or contact Lime Consultancy via the website and one of the team will get back to you.
By David Farmer