Venturing into the realm of rural lending often feels like stepping into a maze of perplexing abbreviations and terminology. From GSA to DOPAS, priority amounts to un-drawn facility fees, and everything in between, it’s easy for borrowers, guarantors, and even professionals like accountants and lawyers to feel overwhelmed. Don’t be fooled by a quick glance at loan offers; the devil truly lies in the details.

 

Mortgages: Beyond the Loan Agreement

When it comes to mortgages, banks naturally secure their position over your property. Yet, understanding the distinction between a mortgage and a loan agreement is crucial. The former secures the loan, while the latter outlines borrowing terms. In cases of default, the mortgage comes into play. Additionally, secondary mortgages, such as those involving family loans, operate with priority, meaning the first mortgage holder gets paid first from sale proceeds.

 

Navigating Family Mortgages: The Role of DOPAS

In scenarios like farm successions, family mortgages play a pivotal role. Parents extending vendor loans may find themselves signing deeds of postponement (DOPAS), which prioritize the bank’s interests over theirs. This ensures the bank’s mortgage holds more sway, influencing considerations of equity and cash flow for succeeding generations.

 

General Security Agreement (GSA): Securing All Assets

Banks often secure loans with GSAs, akin to traditional stock mortgages. This agreement covers all present and future assets, excluding real estate, offering banks broader security.

 

Deciphering Guarantor Obligations

Personal guarantees from farming company directors are commonplace. Despite questions regarding their necessity, these guarantees serve various purposes, including capturing introduced capital and safeguarding the bank’s reputation.

 

Understanding Negative Pledge: Limiting Further Encumbrance

A negative pledge prohibits borrowers from encumbering the bank’s security further. Breaching this agreement, such as by obtaining additional loans secured against the same assets, could have serious repercussions.

 

Demystifying Establishment and Un-Drawn Facility Fees

Borrowers should beware of establishment fees, charged by banks to initiate loans, often adding up to 1% of the loan amount. Similarly, un-drawn facility fees, levied on unused portions of revolving credit facilities, can catch borrowers off guard.

 

Embracing Expert Guidance

In the intricate landscape of rural lending, seeking expert advice is paramount. As legal specialists in the rural sector, we offer comprehensive guidance on farm financing, sales, purchases, and other rural matters. Don’t navigate the complexities alone; let us guide you through the maze of rural lending intricacies.