The Pitfalls of Loans
By Michael Fetter
9 August 2016
Whether you are the Lender, Borrower or Guarantor, there are many pitfalls and matters to watch out for to protect your respective position in the ‘loans’ arena.
Advice and the careful preparation of documents are imperative for various reasons, for example
If you are a Lender, the credit code may apply. Disclosure is then required;
Security positions need to be assessed and securities executed and registered properly including Personal Property Security Interests;
Verification of identity is now a major issue for Borrowers and Guarantors as fraud has grown;
Borrowers need to understand their rights and obligations and the rights of Lenders in cross collateralization of loans;
Guarantors need to carefully assess who they are guaranteeing, what they are guaranteeing and their obligations and obtain careful advice as to when a call on a Guarantor can take place;
Too many Borrowers and Guarantors are provided with loan documents and sign them on the basis that they are told or believe that they cannot be amended and that they are in a standard form. Whether in a standard form or not, they need to have their rights and obligations explained and have a full understanding of them;
Guaranteeing family members has significant pitfalls. Many banks are now not allowing more than one guarantee of a family member;
Penalties for early repayment, rates of penalty interest and hidden charges are some of areas we are seeing lead to many disputes;
Asset protection prior to a loan transaction needs careful consideration;
Independent lawyers need to act for borrowers and guarantors;
Some banks have agreed to comply with certain codes of conduct.