Identifying Risks
Breach of a loan secured by a debenture (written agreement) can entitle the lender to appoint an administrator who will act on behalf of the company to ensure that the lender is paid. This will often be achieved by selling the business and assets of the company to raise the necessary funds.
Most loan documents issued to small businesses by a bank are not negotiable, but I can identify and explain what the risks to you such as the events of default and the ‘potential’ events of default’ (events that, although not yet a default, suggest that a default is likely, and which generally introduce certain special conditions if they occur).
Some loan agreements contain conditions that must be satisfied before the loan can be drawn down called conditions precedent. They may also contain undertakings to ensure that the company does not take certain actions without the lender’s prior consent. The loan agreement will also probably contain warranties that must be given before the loan can be taken.