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Reading a business loan agreement.
A loan agreement is a contract, and it rewards a careful read before you sign. This guide walks through the parts that matter most — the parties, the amount, the charges, the term, what counts as default, and who is on the hook. It is general information, not legal or financial advice.
Start with the parties
Who is lending, and who is borrowing? On a company facility, the borrower should be the company.
The first thing to read in any loan agreement is who the parties are. A business loan agreement names the lender and the borrower. On company finance, the borrower should be the company itself — identified by its full registered name and its Companies House number — not a director in their own name. That single detail decides who owes the debt. The reason a company borrows in its own name rather than a director's is explained in a director's loan vs the company borrowing in its own name.
Check the registered company number against Companies House and make sure it is your company. Check the lender's identity too — running the lender through the same register is part of verifying a UK business lender in five minutes. A clear, correct set of parties is the foundation everything else rests on.
The amount and the charges
How much is advanced, what it costs, and what the total comes to. These should be stated plainly.
| Clause to find | What to confirm |
|---|---|
| The amount advanced | The exact principal the lender pays to the company. |
| Interest or fee | How the cost is charged — a rate per day, a flat fee, or both — and on what balance. |
| Any other charges | Establishment or arrangement fees, and any late or default fees, with their amounts. |
| Total amount payable | The full sum the company will repay if it pays to schedule. |
| Any cost cap | Whether the total cost is capped — for example at 100% of the amount borrowed. |
On a short-term product, watch how the cost is expressed. A daily rate over a few weeks is a small cash cost even though it annualises to a large-looking number — the reason an APR can mislead on short borrowing is the whole subject of flat fees versus APR. What you want from the agreement is the cash total: the pounds the company will actually repay. You can sanity-check that figure for a Credicorp product against the calculators.
The term and how you repay
When the money is due back, on what cadence, and whether you can repay early without penalty.
The term is the period over which the company repays. Read how the repayments are structured — a single repayment at the end, weekly or fortnightly instalments, or minimum payments on a revolving balance. Match that cadence against the company's own cash cycle: the repayment dates need to fall where the company will have the money. Matching the shape of the borrowing to the shape of the need is covered in choosing the right business finance.
Look specifically for what happens if the company repays early. On a well-built short-term product there is no early-repayment penalty, and on a daily-interest loan repaying early simply means fewer days of interest. How that works, and how an unused-fee refund operates, is explained in early repayment and refunds. An agreement that punishes early repayment is telling you something about how the lender makes its money.
Default and what follows
What counts as default, what the lender can do, and what it costs — this is the part most readers skim and should not.
The default clauses set out what happens if the company does not pay as agreed. Read them carefully. They usually define the events that count as default — a missed payment, or in some agreements a wider set of triggers — and the steps the lender may then take. Note any late or default fees and how they are capped, whether interest continues to run, and what notice the lender must give before acting.
Two things in particular are worth checking. First, whether any security is granted — a debenture or charge over company assets, explained in debentures and charges explained. Second, whether any personal guarantee is attached, which would put a director's own assets at risk and is a separate commitment entirely — see personal guarantees explained. A clear agreement makes both of these obvious; an agreement that buries them on a signature page deserves a second look, and ideally a solicitor's eye.
The company as sole obligor
The most important question a director can ask of a company loan agreement is simple: who is on the hook? Where the company is the sole obligor, the company alone owes the debt. If the company cannot pay, the lender's claim is against the company — the director's own home, savings and income are not in play. That is limited liability working as intended.
In a Credicorp agreement, the company is the sole obligor. The agreement is between Credicorp Limited and the company, with no personal guarantee and no charge over company assets. The borrower is always the body corporate, never the director. That position follows from the lending sitting outside the consumer-credit regime under Article 60B of the FSMA Regulated Activities Order 2001, and it is the line that keeps the lending a business matter. When you read any company loan agreement, find the answer to the sole-obligor question before you find anything else.
A note on advice
This guide is general information to help a director read an agreement with a sharper eye. It is not legal or financial advice, and it cannot account for the particular terms in front of you. For anything material, or anything you do not fully understand, take the agreement to a solicitor or accountant before you sign. The cost of an hour's advice is small against the cost of a clause you missed.
Where to go next
- The Key Information Sheet explained — the pre-contract summary that sits alongside
- Early repayment and refunds — what the term clause should allow
- Debentures and charges explained — spotting security in an agreement
- Personal guarantees explained — the obligor question
- A borrower's due-diligence checklist — before you sign anything
- Lending and regulation — why the company is the borrower