A director's guide to reading a business loan agreement

Start with the true cost

The headline rate is only part of the price. Read for arrangement fees, drawdown charges, and how interest is calculated, then work out the total amount repayable. A low rate wrapped in heavy fees can cost more than a clean higher one. Put competing offers side by side with the true cost of borrowing calculator. See fees explained.

Find every covenant

Look for the covenants — conditions you must keep, like maintaining a minimum cover ratio or filing accounts by a date. A breach can be an event of default even when you're paying on time. Know exactly what you're promising and whether you can realistically keep it. See loan covenants.

Check the security and guarantees

Identify what the loan is secured against — a debenture, a floating charge — and, crucially, whether a personal guarantee is required. A guarantee turns company debt into personal risk. Credicorp lends to the company, not to you personally, with no personal guarantee. See personal guarantees.

Read the exit terms

Understand what it costs to leave early — early-settlement charges can wipe out the saving from refinancing. Check whether you can overpay without penalty, and what happens at the end of the term. The freedom to exit cheaply is worth real money if your plans change. See early repayment.

Don't sign under pressure

Never sign an agreement you haven't read in full or don't understand — take advice on anything unclear. The time to negotiate a clause is before signing, not after a breach. A good lender explains the terms plainly. Test the affordability behind it all with the affordability calculator.