Loan

Background

As an alternative to raising money by capital investment for shares in the company, a business may raise money by borrowing.

What are the different types of commercial loan?

• term loan: a loan for an upfront amount of cash repayable either in full on a specified repayment date or in instalments
• loan facility: an arrangement under which a lender agrees to provide one or more loans to a borrower for a period of time and up to specified maximum amount

Business loans can either be:

• unsecured: the repayment of the loan, interest and the other obligations of the borrower are not secured over any of the property or assets of the borrower or of another person.  In case of a default or insolvency of the borrower, the lender will be an unsecured creditor
• secured: the repayment of the loan, interest and the other obligations of the borrower are secured over some or all of the property or assets of the borrower or of another person.  In case of a default or insolvency of the borrower, the lender will have a power to possess and sell the secured property or assets.  The lender will be a secured creditor, with priority over unsecured creditors on an insolvency
• guaranteed: a guarantee may be given by:
  • another company, including a parent company or subsidiary
  • an individual, including a director or shareholder

This section includes different types of loan and facility agreements together with related documents including board minutes of corporate borrowers.  For forms of guarantee, including a corporate guarantee or a personal guarantee, see Guarantee.