With the increasing relaxation of Covid-19 limits across the UK, you may consider taking on debt to fund your commercial objectives. Have a think about the following three points before taking out your first business loan.
Because every business debt must eventually be repaid and carries a slew of legal requirements, it is critical to ask yourself why you are considering taking out a business loan. Consider this issue carefully since it may ultimately assist you in avoiding the need for the business to incur needless debt. For instance, if your existing firm is struggling, taking on debt may not be commercially prudent; instead, it may be prudent to investigate other options, such as restructuring the setup of your current operation. If the loan is being used to finance a subsequent important stage in your business plan or to capitalise on a new commercial opportunity, it may be prudent to investigate the loan type that is best suited to your business needs.
If you believe that taking on debt is the best course of action for your business, the next step is to determine the type of loan and lender that will best assist you in realising the business purpose identified above. Several examples include the following:
A term loan is a type of debt that is issued by a lender for a specific purpose and must be repaid according to the conditions of a repayment plan agreed upon with the lender at the outset. There are numerous variations of term loans available, including small company loans and bridge loans, each with its own unique set of terms and conditions.
A revolving credit facility is an ongoing line of credit established by a lender for a specific purpose and duration. A revolving credit facility is frequently used to refer to an overdraft for regular business expenses. This type of debt offers greater flexibility due to the fact that it can be withdrawn and repaid at any point during the specified period, up to a commitment limit (i.e. the total amount that the lender is willing to provide).
In other words, borrowers may borrow any amount they require (within the agreed limit) whenever they require it. The debt can then be repaid as necessary, provided that the total amount(s) borrowed is repaid in full, including any interest and expenses, prior to the lender's final repayment date.
Additionally, you should examine if you want to borrow money from a bank or a non-bank lender. Banks typically offer a variety of different packages depending on market conditions. For example, some banks may have a stronger appetite for risk in order to build certain lending / sector type portfolios. Alternative lenders frequently concentrate their efforts on specific industry sectors, with varying appetites for financing in those markets.
After determining the type of loan and lender that are most appropriate for your business's needs, consider hiring a solicitor to counsel you and negotiate the legal documentation. A solicitor can provide assistance as early as the heads of terms stage, during which the parties outline the important legal and commercial elements in a single document that will be used to complete the proposed loan arrangement. It's worth noting that even if you choose not to retain a solicitor at this stage and are content to negotiate the loan documents' heads of terms directly with the lender, there are terms in the loan documents, such as borrower representations, warranties, and undertakings, about which an experienced solicitor can advise you on the practical and legal implications.
If you have any questions about the content of this article or are considering taking out a business loan, please contact us today.
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