Money goes into a business on a handshake, a bank’s standard form or a one-page loan agreement found online. That works until the loan is called up, the business is sold or refinanced, or a guarantor is asked to pay, and everyone finds out what the documents actually say about priority, default and release.
We document business finance and security so the rights, priorities and release mechanisms are clear when someone has to rely on them. We act for borrowers, guarantors and lenders, including owners who lend to their own business.
A loan agreement is mostly a list of what happens when things go wrong. The interest rate gets the attention, but the clauses that matter are the events of default, the financial covenants, the lender’s review and demand rights, the fees for early repayment and what the lender can do once a default occurs. A facility repayable on demand can be called at any time, whatever the business’s performance. A term facility generally can’t, unless a default occurs, which is why the default clauses carry so much weight.
We document and negotiate business, acquisition and working-capital loans for borrowers and lenders. For an acquisition, we line the finance up with the sale agreement so the money is available on completion, on conditions the buyer can actually satisfy.
Owners often put money into their own business as a loan, and a company sometimes lends money to its owners. Both are routinely done with nothing more than a bank transfer and a journal entry. That leaves open whether the money is a loan or equity, when it is repayable, whether interest applies and where the owner ranks if the business is sold, refinanced or fails.
We document these loans so the terms match what the parties intended and the business can stand behind them. Loans from a private company to its shareholders or their associates also raise tax questions, including under Division 7A, so we coordinate with your accountant before the documents are signed.
Personal guarantees are often signed quickly, as the last page of a deal that has already been agreed. A guarantee typically covers everything the business owes, with no cap and no end date, and it generally doesn’t fall away because the guarantor resigned as a director or sold their shares.
For guarantors, we advise on what is being signed, negotiate limits, caps and release triggers, and make sure the guarantee is dealt with when the business is sold or refinanced. For lenders, landlords and suppliers who take guarantees, we prepare documents that can be enforced and make sure the signing process supports enforcement, including independent advice for the guarantor where it is needed.
Security gives a lender or supplier a claim over the borrower’s assets if the debt isn’t paid. A general security agreement covers all the grantor’s present and after-acquired property. A specific security agreement covers identified assets such as a property, a vehicle or a piece of plant. Some arrangements that aren’t called security at all, including certain equipment leases, consignments and the retention of title clauses suppliers rely on, can also be security interests under the Personal Property Securities Act.
Under the PPSA, a security interest generally has to be registered on the PPSR to rank properly against other creditors, and an unperfected interest can be lost altogether if the grantor becomes insolvent. A registration made against the wrong name or with the wrong details can fail for the same reason. We advise on the PPSA and make PPSR registrations, amendments and releases for secured parties and grantors.
When more than one party has security over the same assets, the question is who gets paid first. The PPSA sets default rules, and parties often change them by agreement. Lenders commonly require loans from owners to be subordinated before they advance funds. We prepare and negotiate priority and subordination arrangements, and we handle refinancing, including the payout, the discharge of the old security and the release of PPSR registrations.
Releases are the step most often forgotten. A registration still showing on the PPSR after the debt has been repaid can hold up a sale or a refinance, and it is far easier to deal with when the loan is repaid than months later, when a buyer’s solicitor finds it.
