Loan Agreements & Debenture Agreements

Banks and payday lenders are far from the only organisations that offer loans these days. In the current climate of strict lending criteria people are turning to other avenues to obtain much credit when a need arises. If your business is in a position where it is considering giving a loan, perhaps to a member of staff or another party, it is incredibly important to ensure a Loan Agreement is drafted correctly and in place. This will help to avoid any misunderstandings over the terms of the loan and ensure your business is protected against both expected and unforeseen risks and is enforceable in the event of an issue.

If you are providing a loan to another party and want to make sure you are legally protected but would prefer to avoid the cost of having a solicitor draw up the agreement there are legal templates available that act as a cost effective solution. These are comprehensive, legally binding and completely up to date with current UK law. Costing as little as £13 they can be an economical alternative to costly legal representation.

A Loan Agreement needs to cover a number of different aspects in order to be fit for purpose. This includes the amount, purpose, rate of interest, repayment schedule, any applicable guarantees, costs and what happens in the event of a default. These are just a few of the clauses that need to be part of the agreement, but there are a number of others.

In addition to the Loan Agreement you will also need a Debenture Agreement. This is a document that will protect the sum your business is advancing by providing security. The security is provided by the borrower and the Debenture Agreement details the charge that will be taken as security for the sum that is being borrowed.

When a company takes security in the UK it comes with certain requirements. It has to be registered at Companies House and if land is involved it may also need to be registered at the Land Registry. Because the business that is acting as a lender has a hold or charge over the asset, their interest must be registered so that it cannot be sold without their knowledge or agreement. This is important as it protects the lender. Also, if the borrower was to be declared insolvent at some point the Debenture Agreement would ensure the lender had rights as a creditor. A copy of the Debenture Agreement needs to be sent to Companies House and the Land Registry within 21 days of the security being taken. In addition, Companies House will want to receive a copy of the Loan Agreement and the Form MR01.

Further information on both Loan Agreements and Debenture Agreements can be found at The Legal Stop – an online business providing high quality affordable legal and business document templates.

Housing Benefit Cuts Caused Debt Spiral

According to recent study, the housing benefit cut led to a debt spiral fro thousands of families in Merseyside.

The changes a.k.a the “bedroom tax” were announced in April and since then over 14 000 residents are now in rent arrears. The housing benefit cut aims at recipients, whose property has a bedroom, which is deemed to be surplus to requirements. May be at some point they will be forced to take loans and sign loan agreements in order to ensure they have somewhere to live.

By doing so, the government is trying to free up larger properties, so that families, who live in homes, too small for their needs could move into them.

It sounds good, however there is a lack of small properties, which can be hired by the “under occupiers”, which leads to additional expenditures for many peple, which puts them into a difficult financial situation.

The NHF (The National Housing Federation) collected information from 18 social  landlords in Merseyside and found out that almost 26,500 households were affected by the recent cuts, but there were only 155 smaller houses available for those people.

Chief executive of the National Housing Federation, David Orr, commented: “The fact is there aren’t enough smaller social homes in Merseyside for people to avoid the bedroom tax, even if they wanted to move.”

A Department of Work and Pensions spokesman, however, said: “We always monitor the impact of our policies carefully but there is no conclusive evidence that people affected by our housing benefit reforms are not getting the help they need.”

 

Bank Loans to Business Fall Again Despite Funding for Lending

In spite of the Funding for Lending Scheme (FLS) the aim of which was to cope with fall of the UK bank landing, it still continues.

For the first quarter of 2013 net landing has fallen with £300m.

The opinion of banks is that they would make more loans in the second part of the year with better loan agreement clauses.

Now under the new scheme banks and building societies should only prove they would give the money to individuals or businesses and they could borrow it cheaply from the Bank of England.

The period for this scheme was extended by a year.

The latest figures showed that as the old loans were phased out, new lending was about to be granted.

The Bank’s executive director for markets Paul Fisher said:

“The picture of flat lending growth overall is broadly as expected at this stage, reflecting reductions in some legacy portfolios being roughly offset in aggregate by expanding new lending”.

Data showed that there are also banks and building societies like Barclays and Nationwide that have increased their loans.

The current trend has not changed much since the previous figures had been showed- the decline is still in the business landing while lending to individuals started improving.

The Bank of England said that the financial crisis had serious effect over three big lenders (RBS, Lloyds and Santander) and due to them the percentage in reduction of loans was that big.

The British Chambers of Commerce (BCC) was strongly disappointed with the figures.

“It is a concern that lending continues to contract despite the Funding for Lending Scheme having been in place for nearly a year,” said John Longworth, the BCC’s director general.

One example is an online estate agency, called hatched.co.uk, based at Hitchin in Hertfordshire.

It applied for a bank loan of £60,000 last year, but was eventually given just £20,000.

“For me, the bank funding just isn’t filtering through to small businesses like our own,” said the company’s managing director, Adam Day.

“And it’s small businesses like ours which are going to help the economy grow,” he said.

 

MPs Want Tougher Regulation of Payday Loans

MPs announced that in their view Office of Fair Trading does not do enough in order to protect consumers from unscrupulous payday loan companies, which do not have proper loan agreements.

According to the chairperson of the Public Accounts Committee due to the wrong policy of OFT borrowers lose £450m a year.

In her words, the regulator had to use more often its powers to revoke the credit licenses of misbehaving lenders.

She said: “It passively waits for complaints from consumers before acting.”

And added that none of the 72,000 firms currently in the market had ever been fined.

In the cases in which the license of a certain director( who is supposed to have a directors service contract) had been withdrawn the same person does not stop their business but just starts it up under a different name.

The OFT said there were tight constraints that stopped them to a certain extent but they were doing their best in order to cope with the situation.

A spokesman said: “In the last financial year alone the OFT has revoked the licences of some of the UK’s largest credit brokers and debt management firms, and taken formal action in more than 85 other cases.”

As the Financial Conduct Authority will receive the regulatory duties next year the committee decided to give some suggestions which in their view would be helpful for the future.

One of the proposals said that not only the annual percentage rate had to be displayed but also the total amount repayable on a loan. Another of the proposed changes was related to the number of times short-term loans could be “rolled over” by lenders.

 

 

Remove age cap on start-up loans

A proposal came from Lord Young, enterprise adviser to the prime minister, who said that British Business would revive if the age limits on the start-up loans are being changed. New conditions are expected to be included in their loan agreement.

The current age of limit is 30 years. Entrepreneur over this age should for the future be allowed to get taxpayer-funded loans so that they could start up a business.

When such loans started being floated the limiting age was considered to be 24, which will probably be stated into the loan agreement.

This was not the only recommendation of Lord Young in his Growing Your Business report. He also gave some suggestions on how to make it easier for small business to apply for £230m worth of public sector contracts.

Lord Young said: “Growing our smallest businesses would transform our economy – they are the vital 95%.”

He explained that the UK businesses would grow if given the proper possibility to. A good decision against the unemployment will come if half of the UK’s micro businesses took on an additional member of staff.

The principal policy adviser at the Confederation of British Industry (CBI), Hayley Conboy agreed with the mentioned report saying that if supported to grow smaller firms would become medium-sized ones.

‘Lord Young rightly identifies that the Government needs to earmark funding to effectively market existing finance and support schemes.’

Of course, not everybody reacted so positively to the new proposals. Graeme Fisher, head of policy at the Federation of Small Businesses (FSB), was not that excited as he stated that such schemes had to be carefully managed, otherwise they might not help the business but even confuse it more.

 

 

Pari Passu Clause in a Debt Instrument

Pari Passu is a Latin phrase which means ‘equal footstep’ or ‘equal footing’. In the legal sense, the term is used in the context of ‘proportionally; at an equal pace; without preference’.

In terms of debt instruments, Pari Passu can refer to loans, bonds and some types of securities which have an equal right of payment or level of seniority. In other words, the phrase is used to describe similar ranking of securities or lenders.

In a loan agreement the Pari Passu clause is a covenant that loans and securities ‘rank pari passu’ amid all the other unsecured debt of the borrower. The clause is used in the context of unsecured debt securities which are said to rank equally with each other or with other unsecured debts.

The Pari Passu clause requires the borrower to ensure that the lender’s rights under the loan agreement will, at all times, rank at least equally with all of the borrower’s other unsecured and unsubordinated obligations so that the lender’s share of the borrower’s assets in the event of its liquidation will be equal to that of all other unsecured and unsubordinated creditors.

Please note that the Pari Passu clause applies even in secured facilities notwithstanding that is refers to unsecured indebtedness. It is an assurance that the lender’s rights will, if the security fails, rank Pari Passu (equally) with the rights of the borrower’s unsecured creditors and the clause applies to existing as well as future obligations. Its relevance comes if there is a shortfall in the security on enforcement or if the security is for any reason defective.

Generally in a loan agreement a Pari Passu clause prevents the borrower from incurring obligations to other creditors that rank legally senior to the loan agreement containing the clause. Thus, the purpose of the Pari Passu clause is to ensure that the borrower does not have, nor will it subsequently create, a class of creditors whose claims against the borrower will rank legally senior to the indebtedness represented by the loan agreement.

The Pari Passu clause is a companion to the Negative Pledge clause. The Negative Pledge clause is an undertaking by the borrower not to create any security over its assets. Both clauses are fundamentally important covenants usually found in loan agreements. Whilst the Negative Pledge ensures that the lender’s right to repayment is not subordinated to secured creditors, a Pari Passu clause tries to ensure that the lender is not subordinated to unsecure creditors.

In summary, the Negative Pledge and the Pari Passu clause are very important clauses that should be included in every loan agreement in order to ensure that the loan is not subordinated to another lender on insolvency.

 

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In our portfolio of templates we also provide debt instruments with a Pari Passu clause:

Dominic Grieve about the ‘trial by Google’

Dominic Grieve warned over the effect of modern technology on the system of trial by jury.

He mentioned that nobody could nowadays be sure that the decisions of jurors on their verdicts are based on real facts because most of them do believe in the information they find on the Internet which in most of the times turns out to be incorrect and misleading.

The phenomenon called “trial by Google” may damage the principle of open justice as it may easily change the opinions of jurors.

“It should be clear to the defendant, the public, the victim and the prosecution what the evidence in the case is,” said Grieve. “If a jury is exposed to prejudicial material which, for whatever reason, is not before the court, the basis on which the defendant is convicted or acquitted will never be known.”

Grieve also said that the age of the Internet where every person is on one click away from the information he or she needs, ruins the principle due to which any evidence has to be perused on certain rules when it is under consideration.

According to him, jurors are ready to believe in information found on the web and presented out of context.

Another thing he mentioned as important is that the law strictly forbids a case to be researched outside the court. With reference to this status Dominic Grieve said that jurors may be turned into criminals as they search everything in the Internet and do it every day.

However, it is a fact that there are jurors who faced prison sentences because of this.

Don`t feel guilty if you look for legal documents such as Loan Agreement Template online. The Legal Stop is the stop for all your legal needs!

Barclay`s CEO Fears Interest Only Mortgages Scandal

The new Barclay`s chief executive – Antony Jenkins has expressed some concerns that the mis-sold interest-only mortgages , not paid when they reach maturity, could be the reason for a huge financial scandal.

“We spend a lot of time trying to look over the horizon to what might be complaints in the future such as interest-only mortgages”. he also explain that there is a small number of Barclays borrowers, who were in a position to lack enough resources to fund their loan.

The interest-only mortgages are a type of a home loan, where the borrowers are required to pay off only the interest until the maturity date, when they are will be asked to pay off the full sum borrowed. During the period when the house prices were high the banks used to lend higher amounts for the interest-only loans, than they would with a regular repayment scheme.

However, at this stage it could be seen by regulators as an irresponsible action which has placed borrowers in an unfavourable situation now house prices have dropped.

The Financial Services Authority declared that they would be “monitoring the issues” surrounding interest-only mortgages which mature without the borrower having the means to pay off the full amount.

Barclay`s CEO has promised that they will act fairly to the borrowers, who are unable to repay their loans when they mature. “We are trying to communicate frequently as these loans reach maturity and to help if a source of repayment for the loan hasn’t happened”, he stated. He added: “We will be monitoring the issues that arise when interest-only borrowers reach maturity without the means of repayment and will examine the strategies in place across firms and their compatibility with the fair treatment of customers.”

In the recent years banks faced a wide range of mis-seling scandals, so now they fear the interest-only mortgages will be the next bank fiasco.

See also:

Loan Agreement