Confirmation of Ability to Pay Debts in Relation to a Loan

January 2019

Our Loan Agreements are consistently some of our most popular Corporate templates and are designed for use by a broad range of SME businesses. They cover the necessary legal and practical considerations relevant to the lending of small to medium sized amounts. To complement our current portfolio of templates, we have added a Notice or Letter of Solvency addressed to a lender and signed by the director(s) of the borrower confirming the borrower’s solvency and ability to pay its debts in relation to a loan.

The credit worthiness and financial health of a borrower will be of utmost importance to a lender and forms the most important part of a lender’s initial decision to lend when first evaluating a prospective borrower and its capacity to make repayments under a loan.

This Solvency Notice aims to bridge the gap between a lender seeking enforceable security for a loan and having no written comfort at all from a borrower outside the loan agreement; which in effect means that the lender must rely on its own due diligence as to the borrower’s ability to repay the loan. In this template the borrower confirms to the lender that it is solvent, able to repay its debts and will not be negatively impacted as a result of entering into the loan. This can be a useful level of comfort for any lender in addition to the information it has gathered from reviewing a borrower’s annual accounts.

This Letter of Solvency is designed to work alongside our loan agreements and particularly our long form loan agreement.

The contents of this Newsletter are for reference purposes only and do not constitute legal advice. Independent legal advice should be sought in relation to any specific legal matter.

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