Onerous loan terms
Loans go past term for a variety of reasons. A good lender will take a partnership approach and work collaboratively with the borrower and other stakeholders to resolve difficult loan situations.
For the borrower, it is important to understand what the legal consequences should the loan go past term and to carefully consider any onerous clauses in the loan agreement (e.g. high penalty fees and interest, and short remedy period) before agreeing to the loan documentation.
Lender reputation and track record
It is common for borrowers to go back to the same lender for the ease of doing business, particularly for short term funding where speed, commerciality and certainty are important.
Be aware of lenders who do not have a track record of repeat borrowers or have a mixed reputation for being difficult to deal with (e.g. taking a hard stance when loans go past term).
Fees and Interest structure
In comparison to a bank, non-bank lenders charge higher fees and interest in return for fast and flexible funding that better satisfy the borrower’s needs.
If, however the fees and interest appear overly high and uncommercial, for example material upfront fees before any due diligence, a long minimum interest period relative to the term of the loan, these could signify lenders’ other intentions.
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