I recently prepared an expert report in a commercial banking dispute concerning the structure and suitability of loan facilities provided to a small business.
The work involved analysing whether the facilities offered were appropriate for the borrower’s business plan, cash-flow cycle and funding requirements. The report considered the tenor, repayment structure, overdraft arrangements, financial covenants and the interaction between conventional lending and a government-backed SME finance scheme.
A key issue was whether assurances given about the ability to renew or re-borrow certain facilities were consistent with the scheme rules, and whether the borrower was entitled to rely on those assurances when entering into short-term facilities.
The analysis also considered whether alternative funding structures could have been available, and whether a longer-term facility would have better aligned with the business’s order cycle and working-capital needs.
The matter was a useful reminder that commercial lending suitability is not just about the amount advanced. Duration, repayment profile, covenant structure, renewal assumptions and the borrower’s underlying cash-flow cycle can be just as important.