Getting Commercial Finance can be stressful enough and when agreed the automatic reaction is one of relief and lets get it done as quickly as possible. If you have just approached your own bank you may be in for a surprise later down the line.
To most people a twenty five year repayment loan is a long term agreement over twenty five years. Pretty obvious, however it can only be for three or five years!
Here’s what to look for as well as a few other potential surprises
- Commitment – the term of the loan and on expiry when the lender want their money back. A lot of lenders will set this at three or five years but have repayments over a much longer period. On expiry of the product usually there is a new valuation, lender setup fee and renegotiation of the interest rate. Guess what, this will usually increase.
- On demand clause – Common in overdrafts where the bank’s security fluctuates. But are also in some loan agreements. This gives the bank the right to request repayment whenever they want. This clause is not used by all the banks so you need to look at alternative funders as it weakens your position.
- Revaluation clause- Some banks can use this to increase rates, enforce reductions or manage the loan away. Due to your circumstances this may not be possible. Some banks are more pragmatic than others when faced with this situation.
- Cross Default- If you miss a payment on a loan and you have others with the same bank then all of them can be renegotiated. Ensure that if you do miss a payment you pay it quickly other this clause may be enforced.
Please take independent legal advice on any loan agreement and talk to an independent broker as they will know how the different banks behave.
