UK-wide credit perimeter • England & Wales formalities • Scotland & NI differ

This is general legal information, not legal advice.

Business Loan Terms Explained (UK)

Facility letters • personal guarantees • debentures and charges • deeds • the £25,000 line • complaints

Quick summary: a business loan is usually three documents, not one — the facility letter, the security the lender takes over the company, and the personal promise it asks you to sign.

This page explains, in plain English, which of those documents is regulated and which is not, what has to be in writing, what “signed as a deed” changes, the 21-day deadline that decides whether a charge is any good, and when independent legal advice is a step the lender is expected to take rather than a courtesy.

Specialty: UK business borrowing, focused on the wording that decides how much you personally are exposed to and for how long.

Written for directors, sole traders and small partnerships who have a facility letter on the desk, a guarantee attached to it, and a deadline from the lender. It covers what the law requires, what is only market practice, and what to ask before you sign.

Jurisdiction — read this first

The credit perimeter rules (FSMA 2000 and the Regulated Activities Order), the Consumer Credit Act 1974, the FCA Handbook, the Financial Ombudsman Service and Companies House charge registration are UK-wide. The rules on writing, deeds and limitation periods described here are England & Wales. Scotland differs — it has its own rules on constituting obligations in writing and its own prescription periods — take Scottish advice. Northern Ireland has separate limitation and property statutes; take Northern Irish advice. Nothing on this page applies in Ireland, the United States, Australia or Canada.

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Facility letter check

Guarantee scope

Security and charges

Questions for the lender

Best for people saying:

“The bank wants a personal guarantee by Friday.”
“What does ‘all monies’ actually mean?”
“They asked me to sign a debenture as well.”
“Is a business loan covered by consumer credit rules?”
“I ticked a business-purpose box — what did that do?”
“Do I need my own solicitor before I sign?”

You can start with one paragraph. We’ll ask only what’s needed.

The words Regulated or not The guarantee 21-day clock Long FAQ

How this guide helps

Three steps — clear, practical, risk-aware.

1) Separate the documents

Facility letter, security over the company, personal guarantee. Different rules apply to each one, and they are often sent as a single PDF.

Example: “I thought I was signing one thing.”

2) Find your exposure

How much can be claimed from you personally, whether that figure is capped, and how long the lender has to bring a claim.

Two of those three are decided by wording most people skim.

3) Put the questions in writing

A short list of written questions to the lender, before signature, is the cheapest protection available to a borrower.

Then have the answers checked by a solicitor.

The words on your facility letter, in plain English

Six terms account for most of the confusion.

Facility letter — the lender’s offer: amount, term, rate, fees, conditions to be satisfied before drawdown, and the events that let the lender demand the money back early.
Security — for consumer-credit purposes the law’s own list of “security” includes a mortgage, charge, pledge, bond, debenture, indemnity, guarantee, bill or note. So a personal guarantee is security, and so is a debenture.
Personal guarantee — your promise to answer for someone else’s debt, usually your company’s. You are called the surety or guarantor.
Indemnity — the statutory list treats an indemnity as a different thing from a guarantee. Ask the lender, in writing, which of the two you are being asked to sign.
Debenture / fixed and floating charge — security granted by the company over its assets. It must be registered at Companies House. See the 21-day clock.
“All monies” wording — a guarantee that is not limited to one facility or one figure. Where a lender is put on inquiry (see independent legal advice), Etridge lists among the core points a solicitor should cover the amount of the guarantor’s own liability and the fact that the lender may increase or alter the facility without reference to the guarantor. That is guidance for non-commercial sureties, not an entitlement every guarantor has — but the two questions are worth asking whoever you are.

Is your loan a regulated credit agreement? The £25,000 line

“It’s a business loan, so I’m not protected” is sometimes true and sometimes wrong.

A credit agreement, for these purposes, is an agreement between an individual or a “relevant recipient of credit” and a lender. A relevant recipient of credit is a partnership of two or three persons not all of whom are bodies corporate, or an unincorporated body that is not a partnership and does not consist entirely of bodies corporate. A limited company borrower is neither — borrowing through a company puts that loan outside the consumer-credit regime. Since 1 April 2014 a regulated credit agreement means any credit agreement that is not exempt (RAO art 60B, art 60L).

The business exemption needs both limbs

Credit exceeding £25,000 and entered into wholly or predominantly for the purposes of a business carried on, or intended to be carried on, by the borrower (RAO art 60C(3)). A £20,000 loan to a sole trader is not taken out of the regime by that route. For credit of £25,000 or less the business exemption applies only in narrow stated cases, and the test there is “wholly”, without “or predominantly”.

The declaration box. If the agreement contains a business-purpose declaration by the borrower in the form the FCA requires, the agreement is presumed to be for business purposes — unless the lender, or someone acting for the lender, knows or has reasonable cause to suspect that it is not. People sign that box without reading it. It is the single tick that switches the consumer-credit protections off.

If the agreement is regulated, the FCA’s consumer credit sourcebook applies to the firm. Before entering into it the lender must carry out a reasonable creditworthiness assessment, considering credit risk (the risk the customer will not repay by the due dates) and affordability risk (the risk to the customer of not being able to make the repayments). Critically, when assessing affordability risk the firm must not take into account any guarantee or indemnity (CONC 5.2A). So the existence of your guarantee is not evidence that the borrower was assessed as able to pay.

The personal guarantee: writing, form and the copy you should be given

England & Wales for the writing rule; UK-wide for the Consumer Credit Act rules.

It must be in writing and signed. Under section 4 of the Statute of Frauds 1677, no action can be brought on a promise to answer for the debt or default of another person unless the agreement, or a memorandum or note of it, is in writing and signed by the party to be charged or by someone lawfully authorised. A purely spoken guarantee is not enforceable by action.
If the underlying agreement is a regulated agreement, any security provided must be expressed in writing (CCA 1974 s105). The security instrument is not properly executed unless it is in the prescribed form containing the prescribed terms, signed in the prescribed manner by or on behalf of the surety, embodies all the terms, is readily legible when presented for signature, and a copy is given to the surety at the same time.
Copies of the credit agreement itself. Where the security is given at or after the time the regulated agreement is made, a copy of the executed agreement goes to the surety when the security is provided; where it is given before, within seven days after the agreement is made.
Get it wrong and it is not automatically dead. If the security is not in writing, or the instrument is improperly executed, it is enforceable against the surety on an order of the court only. That is a hurdle for the lender, not an escape hatch for you.
These s105 rules protect a third-party surety, not security given by the borrower themselves.

Practical version: ask for the facility letter, the guarantee and any debenture together, keep every copy you are handed, and write down the date you received each one. If you were sent a scan to sign and return with no copy retained, say so in writing at the time.

Signed under hand, or signed as a deed? Six years or twelve

England & Wales. This is the quietest, most expensive detail on the page.

What makes it a deed

It must be clear on the face of the instrument that a deed is intended, and it must be validly executed as one (LP(MP)A 1989 s1). A seal on its own does not make an instrument a deed.

An individual signing

Signed by you in the presence of a witness who attests the signature (or at your direction in your presence and that of two attesting witnesses) — and delivered as a deed.

A company signing

Common seal, or two authorised signatories, or a director in the presence of an attesting witness (CA 2006 s44), plus delivery as a deed.

Two companies, one signatory

Where one person signs on behalf of more than one company, the document is not duly signed unless they sign separately in each capacity.

The limitation consequence

An action founded on simple contract cannot be brought after six years from when the cause of action accrued; an action upon a specialty — which includes an obligation in a deed — has twelve years (Limitation Act 1980 s5, s8).

Why it matters to you

Most guarantors never notice they chose. Signing as a deed can double the window during which the lender can sue you personally.

The debenture and the 21-day clock

UK-wide. Companies House is the single registrar for UK-registered companies.

Where a UK-registered company creates a charge — and “charge” includes a mortgage, and Scottish standard securities and other rights in security constituted under Scots law — the statement of particulars must reach the registrar within 21 days beginning with the day after the date the charge was created, unless the court allows an extended period (CA 2006 s859A).

Miss it and two things happen at once

The charge becomes void, so far as it confers security, against a liquidator, an administrator and a creditor of the company — and the money secured immediately becomes payable (CA 2006 s859H). Borrowers who hear “the bank forgot to register” often assume it is good news. It is not: the debt falls due at once.

After signing, check the company’s filing history on the public register and confirm the charge appears with the right creation date. Do the same after every refinance and every additional charge — the clock runs again each time.

Independent legal advice — when the lender is put on inquiry

England & Wales. This is the point most often misunderstood in both directions.

In Royal Bank of Scotland plc v Etridge (No 2) [2001] UKHL 44, judgment given by the House of Lords on 11 October 2001, the court set out when a lender is put on inquiry and what it should then do. A bank is put on inquiry whenever a wife offers to stand surety for her husband’s debts — knowledge of the relationship alone is enough. More broadly, a lender is put on inquiry in every case where the relationship between the surety and the debtor is non-commercial, and must take reasonable steps to bring home to that guarantor the risks being run. Read the judgment.

The trap: this is not a protection for every guarantor

The judgment says different considerations apply where the relationship between debtor and guarantor is commercial — for example a guarantor paid a fee, or a company guaranteeing the debts of another company in its group — because people in business can be regarded as capable of looking after themselves. A director standing behind their own company’s borrowing is normally in a commercial relationship. Do not assume these steps are owed to you.

Where the lender is put on inquiry, it should communicate directly with the guarantor, explain that it will require written confirmation from a solicitor acting for her, explain that the purpose is so she cannot later dispute being bound, ask her to nominate a solicitor, and not proceed until it has a reply directly from her.

The solicitor’s advice should cover, as a core minimum: the nature of the documents and their practical consequences — she could lose her home, she could be made bankrupt; the seriousness of the risk, including the purpose, amount and principal terms of the facility, that the lender may increase or alter it without reference to her, and the amount of her own liability; that the decision is hers and hers alone; and whether she would like the solicitor to negotiate terms on her behalf, such as a lower limit on liability or the order in which securities are called in. Whether the lender agrees to any of that is a commercial question, not a legal entitlement.

The discussion should be face to face, without the borrower present, in non-technical language. The judgment is blunt about this: it is not a formality. If the solicitor thinks the transaction is against her interests, they give reasoned advice to that effect — but the decision to proceed remains the client’s.

If it goes wrong: complaints and the ombudsman

UK-wide. Complain to the firm first; the ombudsman is the next step, not the first one.

Who can complain. Eligible complainants include a consumer, a micro-enterprise, a charity with annual income of less than £6.5 million, a trustee of a trust with net asset value of less than £5 million, a small business — and a guarantor (DISP 2.7).
“Small business” here means an enterprise that is not a micro-enterprise, has annual turnover of less than £6.5 million, and either employs fewer than 50 people or has a balance sheet total of less than £5 million.
A guarantor is eligible only so far as the complaint arises from matters relevant to their own relationship with the firm.
The award limit. For cases referred to the Financial Ombudsman Service on or after 1 April 2026, about acts or omissions that occurred on or after 1 April 2019, the limit is £455,000. The ombudsman can recommend more, but the business does not have to accept that recommendation.
Interest. For complaints referred from 1 January 2026, interest for being deprived of money is typically calculated using a time-weighted average of the Bank of England base rate plus one percentage point.

Limits and rates are reviewed periodically — check the current figure on the Financial Ombudsman Service pages before you rely on it.

Copy message (to the lender) — before you sign

“Please confirm in writing: (1) whether this agreement is a regulated credit agreement; (2) whether I am being asked to sign a guarantee, an indemnity, or both; (3) the maximum amount recoverable from me personally, and whether it is capped; (4) whether the document is to be signed as a deed; (5) whether the company is granting a fixed or floating charge, and who will register it at Companies House; and (6) please send me a complete copy of every document I am being asked to sign, before signature.”

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The review note records the terms you have been offered and the questions to put back to the lender. It is not a loan agreement, not a guarantee and not a debenture — those come from the lender and should be checked by a solicitor.

Long FAQ (UK business loan terms)

Tap to expand. Plain English, with the jurisdiction flagged where it matters.

1) Is a business loan covered by consumer credit rules?

Sometimes. The main business exemption needs both limbs: credit exceeding £25,000 and an agreement entered into wholly or predominantly for business purposes. Smaller borrowing by a sole trader or a small partnership can still sit inside the regime.

2) What is a “relevant recipient of credit”?

A partnership of two or three persons not all of whom are bodies corporate, or an unincorporated body that is not a partnership and does not consist entirely of bodies corporate. A limited company is not one.

3) I ticked a business-purpose declaration. What did that do?

Where the declaration is in the form the FCA requires, it creates a presumption that the agreement was for business purposes. The presumption does not hold if the lender knew, or had reasonable cause to suspect, that the credit was not really for a business.

4) Does a personal guarantee have to be in writing?

In England & Wales, section 4 of the Statute of Frauds 1677 means no action can be brought on a promise to answer for another’s debt unless the agreement, or a note or memorandum of it, is in writing and signed by the person to be held to it or someone lawfully authorised.

5) Should I be given a copy of what I signed?

Where the underlying agreement is a regulated agreement, the Consumer Credit Act 1974 requires the security to be in writing, legible when presented for signature, and a copy given to the surety at the same time, with copies of the executed credit agreement on the timings set out in section 105. Keep every copy either way.

6) What if the guarantee was not properly executed?

Where security relating to a regulated agreement is not in writing, or the instrument is improperly executed, it is enforceable against the surety on an order of the court only. That is a hurdle for the lender — it does not mean the document simply disappears.

7) Why does “signed as a deed” matter?

In England & Wales an action on a simple contract must be brought within six years of the cause of action accruing; an action on a specialty, which includes an obligation contained in a deed, has twelve years. A deed by an individual also needs a witness who attests the signature, and delivery as a deed.

8) Does my company need a seal?

No. A company can execute by two authorised signatories, or by a director signing in the presence of an attesting witness. A seal on its own does not make an instrument a deed. If one person signs for two companies, they must sign separately in each capacity.

9) What is the 21-day rule for a debenture?

Particulars of a charge created by a UK-registered company must reach the registrar within 21 days beginning with the day after the charge was created, unless the court extends that. If they do not, the charge is void against a liquidator, an administrator and a creditor — and the secured money immediately becomes payable.

10) Do I get independent legal advice as of right?

No. The Etridge steps arise where the lender is put on inquiry, which is where the relationship between guarantor and borrower is non-commercial. A director guaranteeing their own company’s borrowing is normally in a commercial relationship. You can still instruct your own solicitor — and on a document of this kind that is a sensible expense.

11) The lender says my guarantee shows the loan was affordable. Is that right?

Not for a regulated agreement. When a firm assesses affordability risk it must not take into account the existence of, or an intention to obtain, any guarantee or indemnity. The affordability question is about the borrower.

12) Can I take a complaint to the Financial Ombudsman Service?

Possibly. Eligible complainants include consumers, micro-enterprises, small businesses within the stated thresholds, some charities and trusts, and guarantors — a guarantor only so far as the complaint arises from matters relevant to their own relationship with the firm. Complain to the firm first.

13) Does this page apply in Scotland, Northern Ireland or Ireland?

The credit perimeter rules, the Consumer Credit Act, the FCA Handbook and Companies House charge registration are UK-wide. The writing, deed and limitation rules described here are England & Wales. Scotland differs and Northern Ireland differs — take local advice. Nothing here applies in Ireland, the United States, Australia or Canada.

Know what you are signing before Friday

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This is general legal information, not legal advice.

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