When an organisation in one part of the world is attempting to unlock funds for any of a broad range of reasons, it may ultimately seek a loan agreement with a lender in another jurisdiction.
However, various types of loan agreements exist between borrowers and lenders. So, if your organisation is contemplating its options right now, you will need to be well-informed on the distinctions between these types of agreement in purpose, structure, and usage.
Alongside this, for a particular loan agreement to which you commit, there may – or may not – be a need to put in place a UK-based process agent
In this article, then, we will explore two common forms of loan agreement for which such a process agent may be necessary – term loan facility agreements and revolving credit facility agreements.
How do these types of loan agreement differ?
Here is a concise summary of what these types of loan agreements are, and the ways in which they vary from each other:
- A term loan facility agreement is a contract where a lender provides the borrower with a fixed amount of money (a “lump sum”). This lump sum is then repaid over a specific period – “the term” – through scheduled payments (the principal and interest).
- A revolving credit facility agreement is a contract where the lender gives the borrower a maximum credit limit. The borrower is able to draw upon, repay, and reborrow multiple times during the term of the facility – similar to a credit card.
How might your chosen type of loan agreement affect your use of it?
If, then, your organisation commits to a term loan facility agreement, you will typically be expected to make repayments in accordance with a fixed schedule (such as monthly or quarterly). These payments may include principal plus interest, or interest-only with a “balloon” payment at the conclusion of the term.
You are likely to consider this kind of loan agreement as an answer to specific, one-time financing needs, such as capital expenditures, acquisitions, or project financing.
In the event, however, of your organisation deciding in favour of a revolving credit facility agreement, there won’t typically be a fixed repayment schedule for the principal. You will, however, need to pay interest on drawn amounts, and the facility will have a maturity date – at which point, all outstanding amounts will be due.
The latter type of agreement, then, could be a suitably flexible solution for fluctuating cashflow needs, whether you require a short-term liquidity injection or help with ongoing operational expenses.
When would a UK process agent be needed for loan agreements like these?
Whichever type of loan agreement you opt for between those outlined above, it is not the specific type of facility that will dictate whether your organisation is required to appoint a UK-based process agent.
Instead, the key factors will be:
- The governing law of the agreement. If, for instance, a given agreement is governed by English law and as a borrower you do not have any physical presence or registered office in the UK (such as if you are a United States-based or Asian company), it will typically be a contractual necessity for you to appoint a UK-based process agent.
- The borrower’s location. The services of UK process agents would be particularly relevant in situations where the lender is in the UK, but the prospective borrower is situated in another jurisdiction. If this is the case for your company seeking to take out a loan, you can expect to be asked to put in place a UK process agent.
Having a UK process agent in place would mean that in the event of a dispute occurring later between the two parties – for example, as a result of the borrower defaulting on the loan – the lender would be able to serve formal notices to the borrower’s UK-based process agent. This would constitute proper service in accordance with English court procedure rules.
To emphasise: as a borrower, in a situation like the above, it would not be a question of you being able to “choose” whether to appoint a UK process agent or not. It would be a contractual requirement, so if you refused to comply with this requirement, you would not be able to enter into the loan agreement at all.
For more information about our own process agents in the UK here at London Registrars, please download our brochure for this service. You are also welcome to contact us directly with any further questions you may have.