So, let us decode a few of the most commonly encountered business loan terms — straight from the credit desk to your hands.
Joint & Several Personal Guarantee (JSPG)
This means that when two or more people sign as guarantors, the bank can pursue any one of them — or all — for 100% of the debt. If your business partner disappears, you could still be liable for the full loan.
Corporate Guarantee
A related company (usually within the same group) guarantees the loan, providing extra security to the lender.
First Legal Mortgage / Charge
This applies when a loan is secured by property. The lender has the first claim on the property if the borrower defaults.
Charge on Receivables, Fixed Deposits or Debenture
Banks may secure a loan against receivables (incoming payments from customers), fixed deposits, or even a debenture — which provides a floating charge over your company’s entire pool of assets like inventory, equipment, and future receivables. This gives the bank more flexibility in recovering their loan in case of default but may place other lenders in an inferior credit position so proceed with caution.
Condition Precedent (CP)
Pre-disbursement requirements such as opening a bank account or submitting directors’ resolutions. If not fulfilled, the loan cannot be disbursed.
Covenant
These are obligations or restrictions placed on your company.
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Positive covenants require you to do something (e.g., submit financial statements regularly).
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Negative covenants prevent you from doing certain things (e.g., taking on new debt without approval).
Breaching covenants can lead to the loan being recalled.
Default Interest
Default interest is a higher rate (typically +3%–5% p.a.) charged only on the overdue instalment amount, not the full outstanding principal. It’s applied when repayment is late.
Availability Period
The window in which you must draw down the loan before the offer expires.
Cancellation Fee
If you choose not to draw down a loan after it’s approved, some banks charge a fee — usually a percentage of the undrawn amount. This compensates the bank for time, effort, and allocated funds.
Prepayment / Redemption
Early repayment of the loan — often comes with a fee, especially if done during a lock-in period (e.g., 2% of outstanding principal).
Redemption Notice Period
You usually must give written notice (e.g., 30–90 days) before early repayment. If you redeem without notice, you may be charged a redemption fee or an additional month’s interest.
Indemnity Clause
This clause means you agree to compensate the bank for any legal fees, losses or costs linked to your loan.
Representations, Warranties & Undertakings
These are your promises to the bank — e.g., that your company is solvent, your financials are accurate, and you’ll notify the bank of material changes. Breaching these can trigger loan recall.
Legal Searches
Before approving a loan, the bank’s lawyers will conduct searches to check if your business or directors have past defaults, suits, or caveats against assets.
Review Clause
This gives the bank the right to review and amend your loan at their discretion — often annually. This includes changing pricing, covenants, or calling in the loan.
Pari Passu
A Latin term meaning “equal footing.” If your loan is pari passu, it ranks equally with your other debts — no one gets paid first or last unless stated otherwise.
Final Thoughts
Many SMEs sign loan agreements without fully understanding what they’re committing to. As former bankers, We know these business loan terms are often breezed over during the sales pitch — only to resurface when there’s a problem.
At CapitalGuru, our job as brokers is not just to secure funding, but to make sure you fully understand your position. Because a good loan is not just about the rate — it’s about terms, timing, and knowing what you’re signing.
Need help decoding your loan terms? Reach out to CapitalGuru for a second opinion or a tailored loan strategy.