Business - WS5 Debt Finance

Question 1

What are the two types of debt finance?

Answer 1

1) Loans
* bank overdraft
* a term loan
* revolving credit facility

2) Debt securities
* company may issue debt securities IOU’s to investors in return for a cash payment and will have to be repaid by the company at an agreed future date

Question 2

How do partnerships and sole traders borrow money by way of loan?

Answer 2

• Can borrow money from the bank or the owners of the partnership
• The partners should check that there is no restriction on doing so in their partnership agreement.
• If there is, the partners can change this by unanimous consent.

Question 3

What is the first consideration with regards to the company’s power to borrow / give security?

Answer 3

If a company has unamended MA
* Directors may approve by board resolution

If a company does not have unamended MA
* Company formed before 1 October 2009 - check memorandum - amend by special resolution
* Company formed after 1 October 2009 - check articles
- amend by special resolution

NOTE: Directors must have authority to act on behalf of the company (authority comes from MA3).

Question 4

What is a loan facility?

Answer 4

A loan facility is an agreement between a borrower and a lender which gives the borrower the right to borrow money on the terms set out in the agreement.

Question 5

What are the types of loan facilities?

Answer 5

1) Overdraft
2) Term loan
3) Revolving Credit Facility (RCF)

Question 6

What is a term Loan?

Answer 6

• Loan of money for a fixed period of time, repayable on a certain date.
• Borrower must pay interest at regular intervals
• Loans are usually for up to one year and medium-term loans are usually for up to 5 years and used for purchase a capital asset, e.g. land, building, machinery

Question 7

What is an overdraft?

Answer 7

Overdraft
- On-demand facility- bank can call for all of the money owed to it at any point in time and demand it is repaid immediately.
- Bank will charge interest by reference to its base rate.
- Flexible source of finance, relatively few formalities

*Unsuitable as long-term borrowing facility.
*Interest is paid to the bank on the amount the customer is overdrawn.
*Mostly used by small and medium-sized businesses

Question 8

What is a Revolving Credit facility?

FACILITY AGREEMENT

Answer 8

Hybrid between a loan and an overdraft.

Loan of money for a specified period of time, but borrower can repeatedly borrow and re-pay loans up to the agreed maximum overall amount.

They may repay, re-borrow when needed.

*Helps borrower keep interest payments down by only borrowing when it needs funds and repaying loans when it has available cash.
* Used by businesses whose income is not evenly distributed throughout the year.

Can be
- secured
- unsecured
- bilateral
- syndicated

Question 9

What is meant by ‘giving security’?

Answer 9

A charge document will usually provide a lender with a security for a loan.

It is an enforceable right that the lender has to the borrowers right - this means that in the event of default, e.g. failure to repay, the charge holder will have priority over unsecured creditors and may sell the charged assets to settle sums owed.

Question 10

What are the 4 main types of a loan?

Answer 10

Loans can be
1) secured
2) unsecured
3) bilateral
4) syndicated (between a business and a number of different lenders who jointly provide the money the business wants to borrow, common for high risk, high amount of money and the risk of lending is shared between a number of banks - can be called a loan agreement, credit agreement or facility agreement).

Question 11

What is the ‘interest’ contractual term of a loan?

Answer 11

1) Interest
- Payable on the loan at the rate agreed between the parties
- There is no statutory control over the applicable rate
- It may be fixed or floating

If floating, the rate will be tied to the Bank of England base rate and may increase (or decrease).

Term loans which are repayable in a single lump sum at the end of the agreement - bullet repayment

Loan may be repayable in installments - amortising

Question 12

What is meant by a committed facility?

Answer 12

Both a term loan and a revolved credit facility are ‘committed facilities’.

Once the loan agreement has been signed, the bank must provide the business with the loan monies when it requests them.

Question 13

What are the key contractual terms of a loan?

Answer 13

1) Interest
2) Express Covenants
3) Events of default
4) Taking Security

Question 14

What are the express covenants terms of the loan?

Answer 14

Loan agreements require the company to enter into covenants so that its business is kept within agreed limits and the lender stands the best chance of being repaid.

Covenants tend to fall into 2 categories:
1) Provision of information
- E.g. annual accounts, interim financial statements, communications sent to shareholders and such other information as the lender may require

2) Financial performance
Intended to ensure the company stays solvent and is not too dependent on debt.
E.g. the company may:
- Be required to pay its debts when they fall due
- Be obliged to obtain further finance by equity finance only
- Need to ensure its dividends do not exceed a specified percentage of net profits
- Need to comply with minimum capital requirements - i.e. the company must ensure that current assets exceed current liabilities by a specified amount or percentage
- Be prevented from taking further security over assets without the lender’s consent - ‘negative pledge clause’ this may restrict the company’s ability to obtain further finance.
- Limitation of dividends - companies must ensure that dividends and other distributions to shareholders do not exceed a specified percentage of the net profits.

Question 15

What is the events of default clause in a loan?

Answer 15

The agreement will specify certain events, which if they occur will entitle the lender to terminate the agreement

Such events may include
- Failure to pay any sum due (be it of interest or repayment capital)
- Commencement of any insolvency procedure
- Breach of other obligations under the facility agreement
- Cross default i.e. defaulting on loan to another lender

Question 16

What is meant by the ‘taking security’ clause in a contract?

Answer 16

Companies formed with Model Articles have the power to grant security over their assets.

Question 17

What are the implied covenants in a loan agreement?

Answer 17

Terms may be implied by the banks right to charge compound interest.

Court can imply terms
Only if it were necessary to give business efficacy to the contract or if the term is so obvious that ‘it goes without saying’

The court could not imply terms
If it is inconsistent with an express term of the contract.

Question 18

What is a debenture?

Answer 18

A debenture is not a separate type of debt finance.

A loan agreement in writing between a borrower and a lender that is registered at Companies House. It gives the lender security over the borrower’s assets.

Only companies and LLP’s can enter into debenture, sole traders and general partnerships cannot.

Question 19

What is secured debt?

Answer 19

A lender with security may claim the secured assets of the business if the business fails to meet its obligations under the facility agreement.

If a business becomes insolvent, secured creditors are therefore in a much stronger position than unsecured creditors, who generally do not have any rights of priority to the business’s assets.

Question 20

What is the pari passu principle?

Answer 20

Unsecured debts are governed by the equality principle (pari passu) which means that a unsecured debt are all reduced pro rata if there are insufficient funds to pay all the business’s debts.

Question 21

What is the relative risk of the investment - Equity finance vs. Debt finance?

Answer 21

Equity finance
- Riskier than providing a loan
- Investor cannot take security and if the company becomes insolvent creditors will be paid before shareholders - may get nothing back.

Debt Finance
Can spread the risk:
- Syndicated loans
- Security
- Can seek guarantees from directors

Lender is much more likely to get repaid if the company goes insolvent.

Question 22

What is the difference between involvement in a company: Equity vs Debt Finance?

Answer 22

Equity Finance
- Shareholders are likely to have influence over the way in which the company is run, e.g. the investor may have voting rights

Debt Finance
- A lender is a creditor of the company, without any ownership rights and therefore has no say in the way the company is run (save for imposing covenants) provided the company sticks to the terms of the facility agreement.

Question 23

What is the difference between the repayment of capital : Equity vs Debt finance?

Answer 23

Equity Finance
- Generally shares are not repayable unless the company is wound up.

Debt Finance
- Repayable in full at a future date

Question 24

What is the difference between the restrictions on sale - Equity vs Debt Finance?

Answer 24

Equity Finance
- Shares can be sold but may be restricted by the articles
- MA 26(5) gives directors of a company discretion to
refuse to register a new shareholder.

Debt Finance
- Nothing to stop the lender transferring the loan agreement to a third party

Question 25

What is the difference between the capital of the investment - Equity vs Debt Finance?

Answer 25

Equity Finance
- The value of a private company’s shares may increase or decrease, depending on the company’s success.
- Shareholders invest in shares hoping they will increase in value (capital appreciation) rather than because of income by way of dividend.

Debt Finance
- The capital value of a facility agreement generally remains constant.

Question 26

What is the difference between the degree of statutory influence- Equity vs Debt Finance?

Answer 26

Equity Finance
- Tightly controlled by the CA 2006

Debt Finance
- Predominantly a matter of contract law, and may be more flexible way for the company to raise money.

Question 27

What is the difference between the payment of income - Equity vs Debt Finance?

Answer 27

Equity Finance
- The company is able to pay a dividend to its members only if there are sufficient available profits
- Even if the company is sufficiently profitable, the directors usually have complete discretion as to whether a dividend should be paid (depending on the type of share)

Debt Finance
- Debt interest must be paid in accordance with the terms of the facility agreement, whether or not the company has profits available.
- If there are no profits, the company must use capital to make the interest payment.
- If the company fails to make a payment of interest, the lender may be entitled to enforce the terms of the debenture by the appointment of a receiver or an administrator.

Question 28

What is the difference between the tax treatment of income payments - Equity vs Debt Finance?

Answer 28

Equity Finance
- Dividend payments are NOT tax deductible expense for the company.

Debt Finance
- Interest is normally a trading expense which can be deducted to reduce the company’s tax liability.

Question 29

What is the difference between cost - Equity vs Debt Finance?

Answer 29

Equity finance
- Dilution of existing shareholdings. May raise control issues

Debt Finance
- The cost of debt is the interest rate charged by the lender to the borrowing company
- The rate depends on economic circumstances, e.g. if interest rates are low can be relatively cheap.

Question 30

What is the difference in restrictions on ability to raise finance- equity vs debt finance?

Answer 30

Equity finance
- The articles may restrict the company’s
ability to borrow.

Debt Finance
- Less regulated than shares, however, obtaining loans may be subject to restrictions in the company’s articles or existing loan agreements.

Question 31

What are the advantages and disadvantages of an overdraft?

Answer 31

Advantages
Flexible - allows for easy instant access to additional funds when needed
Few formalities required

Disadvantages
- Usually repayable on demand, thus repayments can be required without notice
- Fees and interest - the company will have to pay a fee for the overdraft facility and interest will be charged on a compound basis
- Can be an expensive form of borrowing as the lender is unsecured

Question 32

What are the advantages and disadvantages of an a loan agreement?

Answer 32

Advantages
- Certainty as to repayments

Disadvantages
- Once repaid money cannot be re-borrowed unlike with an an overdraft and RCF
- Can take time and be expensive to negotiate and draft legal documentation

Question 33

What are the advantages and disadvantages of a RCF?

Answer 33

Advantages:
- Very flexible for the borrower
- The borrower can reduce its borrowings at a given moment to reduce the interest payable
- particularly useful for companies whose income is unevenly distributed throughout the year (seasonal variations)

Disadvantages
- Flexibility can be tempered by restrictions, such as a notice period for drawings
- There is a maximum amount for individual drawings.
- Can take time and be expensive to negotiate and draft legal documentation

Question 34

What is a mortgage?

Answer 34

A mortgage is the highest form of security. It involves the transfer of legal title to the lender with re-conveyance / transfer back to the borrower when the debt is paid off.

Gives lender immediate right to possession, usually in land it is a fixed charge.

Question 35

What is a charge?

Answer 35

A charge provides the lender with an interest in the property, but unlike a mortgage in the traditional sense, it does not transfer legal title.

Question 36

What is a fixed charge?

Answer 36

A fixed charge is a charge taken over a particular asset or assets (e.g. property or plant and machinery).

A mortgage is an example of a fixed charge.

Question 37

What is crystallisation?

Answer 37

On Crystallisation, a floating charge ‘fixes’ on the assets in the particular class at that time and becomes a fixed charge.

Crystallisation usually occurs when a company becomes insolvent or any other event occurs which the charge specifies will cause crystallisation (e.g. non payment, ceasing to trade or other default).

Question 38

Which two types of business structures cannot grant floating charges?

Answer 38

1) Sole Trader
2) General Partnerships

Only fixed charges

Question 39

What is meant by companies power to borrow / give security?

Answer 39

Directors must make sure that the company has the power to grant security over its assets before entering into any security contracts on the company’s behalf, otherwise they will be acting outside their authority and in breach of duty.

Therefore
1) If a company has unamended articles - directors may approve by board resolution and have an implied power to grant security for any borrowing
2) Check memorandum- shareholders must pass a special resolution to amend company’s articles

If a company doesn’t have unamended MA’s
Company formed before 1 October 2009 - can grant security
Company formed after 1 October 2009 - check articles - shareholders must pass a special resolution.

Directors must also ensure that they have the necessary authority to enter into any security contract on the company’s behalf. For a company with Model Articles for a private company, the authority is contained in MA 3 - if the company has amended or bespoke articles, must be checked for any restrictions on the directors acting in this situation.

Question 40

What are the lender’s initial considerations?

Answer 40

1) Inspect articles of a company, searching the company’s records and requesting copies of the relevant board resolutions - to make sure there are no restrictions on the company granting security and directors have authority to act and have been properly appointed

2) Check company records at companies house - see if any charges have been registered already against the company’s property and ensure that there is sufficient value that the property to provide adequate security for the proposed loan (e.g. market value of property)

Registrar of companys must include a certified copy of the instrument creating the charge in the register, which is open to inspection by any person.

3) Land Registry - check company’s title to the land to see if any pre-existing charges have been registered

4) Intellectual Property Rights - e.g. trademark, lender should check the company’s title to the IP Property Office.

A lender should also conduct a winding-up search by telephone at Companies Court to check that no insolvency proceedings have been commenced against the company.

Question 41

What kind of assets may be secured?

Answer 41

All assets of a company might be offered as security for its borrowings:

E.g.
1) Land, whether freehold or leasehold and fixtures and fittings
2) Tangible property, such as machinery, computers and stock
3) Intangible property, such as money in a bank account, debts owed, any shares they own in other companies and intellectual property rights.

Question 42

What are the key features of a fixed charge?

Answer 42

1) Contractual Restrictions
- The lender will normally restrict the charge-holder’s ability to deal freely with the asset whilst the charge exists.
E.g. the company will only be able to sell the asset with the Lender’s permission

2) Contractual obligations
- The charge-holder may impose positive obligations on the borrower as a term of the loan contract
E.g. to keep the asset in good condition (in order to maintain the value of the security)

3) If the company goes into financial difficulties
- The fixed charge-holder will have a right to sell the asset and be paid out of the proceeds of sale
- Holders of fixed charges will rank above floating charge-holders and unsecured creditors in terms of order the payment of assets in the event of insolvency
- This means that fixed charge holders will get their money back first in the event of insolvency.

4) A fixed charge can be taken over ‘book debts’ - book debts are monies owed to the company by its debtors
- they are an asset of the company on its balance sheet
- as they are assets, they can be charged

Book debts can be subject to a fixed charge, if the charge holder has control over
- The debts and the proceeds once they are paid
National Westminster Bank plc v Spectrum - If the lender has no control over how the proceeds are to be paid, e.g. if the company was entitled to the use the proceeds for business purposes first, then the lender is likely to have a floating charge only.

Question 43

What are the advantages of a floating charge?

Answer 43

• Enables the company to deal freely with assets.
• Allows a creditor to take security over assets unsuitable for a fixed charge. This enables the company to maximise the amount it can borrow

Question 44

What are the key features of a floating charge?

Answer 44

A floating charge is security over a group of assets which is constantly changing e.g. stock.

The borrower is able to deal freely with the assets until the floating charge crystallises.

Negative Pledge clause - A floating charge will likely contain a negative pledge clause which restricts the borrower from granting further charges which rank above the floating charge. This is disclosed in the MR01 form.

Question 45

What are the disadvantages of a floating charge?

Answer 45

• Floating charges rank behind fixed charges and preferential creditors.
• Some of the available money will be ring-fenced for unsecured ‘preferential creditors’ who take priority in the event of insolvency
• A floating charge enables the borrower to deal freely with assets so therefore these may be sold
• The normal resolution to this problem is for the lender to take fixed charges as well
• Liquidators claw-back powers enable floating charges to be set aside in certain circumstances. This would have the effect of removing the floating charge holder’s priority over unsecured creditors of the company.

Question 46

What is the order of priority for a fixed charge?

Answer 46

1) Fixed charge or mortgage will take priority over a floating charge over the same asset, even if the floating charge was created before the fixed charge or mortgage

2) If there is more than one registered fixed charge or mortgage over the same asset, they have priority in order of their date of creation, not date of registration

Another creditor who has a registered charge over the same asset will take priority
- If unregistered, the charge remains valid and enforceable against the company as long as it is solvent

Question 47

What is the order of priority floating charge?

Answer 47

Priority in order of their date of creation, not their date of registration.

Question 48

What are the forms of security over assets?

Answer 48

1) Guarantees
2) Pledges
3) Liens

Question 49

What is a guarantee?

Answer 49

Directors or shareholders personally guarantee the loan.

I.e. the director or shareholder will be personally liable in the event of default

Question 50

What is a pledge?

Answer 50

An asset is physically delivered to the lender, who will have a right to sell the asset (with sufficient notice) until the debtor has paid his debt.

Question 51

What is a lien?

Answer 51

A lien is a right to keep possession of property belonging to a debtor until the debt is paid.

May arise:
1) Common Law - e.g. solicitor has a right, in the event of unpaid costs and disbursements, to retain a client’s file of papers pending payment. The solicitor obtains a lien over papers
2) By Statute - under s41 sale of goods act
3) In equity.

Question 52

CHECK THIS FLASHCARD: What are the key terms in a charging document?

Answer 52

1) Security
- Type of security will be stated - e.g. fixed/floating charge or both

2) Representations and warranties - the borrower will have to make a series of contractual statements relating to the assets which it is charging. Borrower will have to warrant that the property is free from any other charge.
- If there is another charge already over the asset, then the borrower must disclose this or it will breach the contract and give the lender the right to terminate the loan agreement.

3) Covenants - borrower will have to make a series of covenants relating to assets it is charging. Covenants will seek to ensure that the value of the assets is maintained by the borrower, for example by stipulating that the borrower will conduct proper maintenance and arrange adequate insurance.

4) Enforcement and powers - Agreement will set out the circumstances in which security becomes enforceable, for example if the loan payments are not made on time, if provisions of the charging document are breached or if the borrower gets into financial difficulty

It will also set out the lender’s powers, including the power to sell the assets which are subject to the charge, recover the debt due. If the lender is a qualifying charge holder, the lender will be empowered to appoint an administrator without petitioning the court.

5) Procedural matters for companies issuing debentures
- It will usually be the directors decision to borrow money in the company’s name and it is they who will negotiate with the lender the terms on which the loan is to be made, and any security provided. A board resolution will usually be sufficient to authorize both the borrowing by the company and the grant of any security

However, there may be problems over the ability of the directors to vote and count in the quorum on the resolution to borrow and grant security, particularly if the directors have been asked to guarantee the loan personally.

Articles may prevent any director who has a personal interest (possibly all directors) from being involved in the decision to borrow. It may therefore be necessary to call a general meeting or to circulate written resolutions, either to suspend any prohibition in the articles by ordinary resolution, to allow the directors to count in the quorum or vote, or to change the articles by special resolution.

Once the directors have resolved to enter into the loan and grant security, the documents will be executed in accordance with CA 2006.

Question 53

What are the registration requirements of a charge?

Answer 53

Before it was compulsory to register most charges, but since 6 April 2013 it is voluntary.

The company or a person ‘interested in the charge’ may decide to register it within 21 days. If they do not register it then they will not have security in the event of insolvency.

Question 54

What are the registration requirements of a charge at companies house?

Answer 54

1) Within 21 days of creation of the charge, the company or a person ‘interested in the charge’ must file a companies house statement (MR01), a certified copy of the instrument creating the charge and the fee
2) Once document has been delivered, assuming everything is in order, Registrar of Companies must register the charge and include the certified copy of the charge on the register
3) Registrar must give a certificate of registration, conclusive evidence that the charge is properly registered
4) Form MR01 and certified copy of the charging document will be put on the company’s file - available for public inspection
5) If the required documents are correctly delivered on time, the charge will be fully valid against another creditor of the company, or an administrator or liquidator of the company

Copy of the charging document and form MR01 should be kept available for inspection at its registered office or SAIL. Failure to do this is a criminal offence, but it does not affect the validity of the charge

6) If a fixed charge is taken over land - Register at HMLR - otherwise buyer could acquire land without being subject to the fixed charge, even if they actually knew of its existence.

Question 55

What happens if the charge isn’t registered at companies house?

Answer 55

Renders the charge void against a liquidator or an administrator of the company and against the company’s other creditors.

Company still obliged to repay the debt, and it is repayable immediately but the lender cannot enforce security - as if the security was not granted.

If the company goes insolvent - will be disastrous for the original charge holder as it would lose its priority over the proceeds of sale of the asset and be treated the same as other, unsecured creditors. If it was due to solicitors mistake - can be a claim for negligence.

Question 56

What if the charge is registered late, beyond 21 days?

Answer 56

Weekends and bank holidays are included in the 21 days.

There is a limited power under 859 CA 2006 for the court to extend the 21 day period if the failure to deliver the required documents was accidental due to inadvertence or if would not prejudice the position of other creditors or shareholders of the company.
- If an application is successful - charge will have priority only from date of actual registration and may lose priority due to delay if other charges have been registered in the meantime.
- Court can order power to an extension of time and allow rectification of any statement or notice delivered to the Registrar for any inaccurate details, and to order a replacement document on the register, e.g. the charging document was defective or wrong document was sent.

Question 57

What is redemption of a loan?

Answer 57

When the loan secured by a registered charge is repaid by the borrower to the lender, a person with an interest in the registration of the charge (such as a director of the company) may but is not obliged to, complete and sign form MR04 to Registrar of Companies at Companies House to redeem the loan.

Should also be removed by DS1 at LR.

Question 58

What is a subordination agreement?

Deed of priority?

Answer 58

Creditors can enter into an agreement between themselves to alter the priority of their charges.

It is executed by the creditors concerned and sometimes the company.

This may happen if the holder of a fixed charge allowed a bank to have priority for its floating charge. The bank would do this because the bank would only advance new funds to allow the borrower to continue to trade if the bank could have priority.

Question 59

What exactly is a negative pledge clause?

Answer 59

A floating charge ranks behind a later fixed charge or mortgage over the same asset, provided that later fixed charge or mortgage is properly registered.

In order to prevent this from happening, it is usual to include a negative pledge in the floating charge document. This clause prohibits the company from creating later charges with priority if the floating charge (i.e. fixed or mortgage) without the floating charge holder’s permission.

If a subsequent lender takes a charge over the same asset and has actual knowledge of the negative pledge clause then the subsequent lender’s fixed charge will be subordinate to the original floating charge.

Constructive knowledge by the subsequent charge holder - merely because the existence of the negative pledge clause was revealed on MR01 is not enough. If a subsequent charge holder conducts a search of the company’s records at Companies House (when lender does their DD) - then it will come across the certified copy of the charging document containing this clause.

The subsequent charge holder will therefore have the required actual knowledge and will not have priority over the floating charge. It is also possible that the subsequent charge holder will be liable for the tort of inducing breach of contract.

In order to protect itself from being in such a situation, the agreement for the subsequent
charge should contain a covenant (contractual promise) by the company to the effect that
there are no earlier charges which are subject to a negative pledge clause. If this is not true,
the company will be in breach of that agreement and it may be terminated immediately.

Question 60

How should a charge by executed?

Answer 60

Correct execution clause when signing a deed by
- Affixing its seal or
- By the signatures of 2 authorised signatories (a director or company secretary) OR
- A director of the company in the presence of a witness who attests the signature.

Document must be delivered as a deed - must be clear on the face of it that it is intended to be a deed.

Question 61

What is a company seal execution method?

Answer 61

The position with regard to the company seal is more complicated if the company has the
Model Articles: MA 49 states that if a company wishes to use its seal to execute a document,
the document must also be signed by at least one authorised person (director, company
secretary or other authorised person) in the presence of a witness who attests the signature.

Question 62

Who is deemed to have authority to sign a deed on behalf of a company?

Answer 62

Contracts can be entered into by a company using the company seal or on behalf of the
company by a person acting under its authority, express or implied (s 43 CA 2006). This will
often be a director, but could also be another employee if entering into contracts is part of
their role.

Question 63

How is a charge released e.g. on sale of property?

Answer 63

Lender can release a borrower’s property from the charge or allow it to sell the asset covered by the charge.

If this happens, a person with an interest in the registration of the charge (director) complete, sign and send form MR04 to the Registrar of Companies and Companies House.

Should also be removed by DS1 at LR.

Question 64

What is a floating charge?

Answer 64

A floating charge is a charge taken over a particular class of assets, owned from time to time - e.g. tanigable stock and/or intangible e.g. intellectual property and can only be granted by a company or LLP.

The company / LLP can deal with the assets without the consent of the lender until crystallization, as until then, it ‘floats over’ rather than ‘fixes on’ the assets.

Question 65

What is the difference in gearing - Equity vs Debt Finance?

Answer 65

Equity Finance
- Issues of new shares is subject to procedural restrictions in the Companies Act 2006.
- Loans are far less regulated

Debt Finance
- Less regulated than shares however, obtaining loans may be subject to restrictions in the company’s articles or existing loan agreements.

Question 66

What is an advantage of a loan?

Answer 66

1) Gives greater certainty than an overdraft (which is payable on demand) on repayments

2) Borrower has greater control because the bank can only demand early repayment if the borrower is in breach of agreement