Loading content
Before You Do This · Debt & Recovery
What is actually secured, who is personally on the hook, what the covenants require of you, and what the lender can do on default.
The situation: A facility, an investor advance or a supplier credit line is on the table
Borrowing decisions are usually made on the headline rate. The terms that matter when trading gets difficult are the security, the personal guarantee, the covenants and the events of default.
A personal guarantee converts a company debt into a personal one. It is the single term most often signed quickly and regretted slowly.
What the law is doing in this situation, and which instrument it sits under. These are general explanations, not an assessment of your circumstances.
Know the true cost, not the headline rate
Interest basis, fees, insurance requirements, default interest and any early-repayment charge together make up the cost. Ask for the total amount repayable under the schedule as offered.
Security is what the lender takes if you fail
A charge over assets, a debenture over the business, or a mortgage over property each has different consequences. Know exactly what is being given, and what remains free for other financing.
Companies and Allied Matters Act 2020
A personal guarantee is personal
It survives the company. Check whether it is capped, whether it is joint and several with co-founders, whether it covers future facilities, and what has to happen before the lender can call on it.
Covenants restrict how you run the business
Reporting, financial ratios, restrictions on further borrowing, on distributions and on disposals. A covenant breach can be an event of default even when every payment has been made on time.
Events of default can be broad
Cross-default, material adverse change and breach of any obligation are common. Understand what gives the lender the right to accelerate and enforce.
Registration of charges matters
Security over company assets is generally required to be registered, and registration affects priority between creditors. This is a point of substance, not administration.
Companies and Allied Matters Act 2020
These are ordinary and usually well-intentioned. That is exactly why they are worth naming.
None of these is proof of bad faith on its own. Two or three together is a reason to slow down.
Work through these before you commit. They are educational prompts, not a compliance certification.
When to speak to a lawyer