Have you advanced funds to a start-up venture or to a family or friend?

When starting a new venture, it’s easy to skip over the formalities, especially when dealing with people you know and trust. However, it is essential to make sure your financial support is properly documented and secured – not just to protect your funds, but also to keep relationships and business dealings smooth.

Proper Documentation Matters

Whenever you lend money – whether it’s through your business or personally – it’s crucial to have a clear loan agreement. This agreement should cover:

• How much money is being lent
• When and how it will be repaid, including any instalment plans
• If applicable, the interest rate and how it will be calculated and paid

A well-drafted loan agreement sets clear expectations for everyone involved and helps avoid misunderstandings further on down the line.

Securing Your Loan: Why It’s Necessary

Even when lending to someone close, it’s smart to secure your loan. This ensures that if the borrower faces financial trouble, your loan takes priority over other debts and gives you a clear path to getting your money back. Here are some effective types of security to consider:

1. Mortgages: Securing the loan against real estate property ensures that your investment is protected by valuable, tangible assets.
2. Charges: A charge over property or other assets, secured by a caveat, can provide strong protection, preventing the sale of an asset without your consent.
3. Securities Over Business Assets: Secures your loan against business assets like equipment or intellectual property through a security agreement.
4. Securities Over Specific Assets: Protects your loan by securing specific assets (for example, vehicles, shares, jewellery) and registering them on the PPSR.
5. All Present and After-Acquired Property (All PAPs): Offers broad protection by covering all current and future assets of the borrower when registered on the PPSR.

We’re Here to Help

If you need assistance documenting your loan arrangements or securing your investments, our commercial team at Hitch Advisory is here to assist you every step of the way.