BBA response to banks commitment on Deeds of Priority


Banking groups announced today that they have implemented new procedures to help businesses secure alternative finance. In March the BBA and the four main high street lenders: Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland; agreed a common protocol that will enable alternative lenders to more readily agree with banks standard forms of Deeds of Priority or Waivers to small businesses seeking other finance options. The measures should allow lenders to efficiently agree an order of priority of security to support their business finance arrangements. This was also referenced in Budget.

We are pleased today to confirm these banking groups have now implemented these procedures :

  • The protocol
  • The Bank’s standard documents and central coordination points to respond to requests from alternate lenders to create new arrangements

Bank of Scotland

Barclays Bank

HSBC

Lloyds Bank – Commercial

Lloyds Bank – Retail Business

Lombard

NatWest

RBS Invoice Finance

The Royal Bank of Scotland

BBA Executive Director Irene Graham said:

“We want to make sure businesses trying to get a loan have certainty on security arrangements as quickly as possible so we are really pleased the banks have now implemented the agreed protocols.

“Banks already have several hundred of these agreements in place but public standard documents should speed matters up for new lenders.

“Businesses should ensure all necessary information is provided to support these requests. With all information present, the banks are committed to respond to all but the most complex of requests within seven working days which should allow businesses certainty on their new finance arrangements as quickly as possible.”


What is a Waiver arrangement or Deed of Priority (also known as a Ranking Arrangement in Scotland)?

There may be occasions when business customers have reason to obtain finance from a variety of sources.

  • When a business has a borrowing relationship with a bank, security may be taken over the assets of their business (in the form of a debenture), to secure the facilities provided both present and in the future (e.g. loans or overdraft or invoice discount facility). This security could be over all of the assets of the business or limited to specific assets e.g. debtor books etc.
  • If a business wishes to obtain finance from another lender e.g. peer to peer; specialist asset financier, or another bank, that new lender may also want to take security over some or all of the assets of the business in respect of their lending.
  • It is important that each lender – the original and the new – know of the security arrangements as they will need to liaise with each other in order for the new lender to be able to confirm its security and ranking before the lending and funds are provided.
  • This can be undertaken under a variety of methods such as a waiver arrangement or a deed of priority. In particular a deed of priority sets out the agreed terms between the lenders covering how the assets of the business will be distributed between them in the event of realisation.

So what do business customers need to do?

  • Businesses should notify their existing lenders – through a relationship manager or usual contact point – that they intend to seek alternate finance, or of such arrangements, and discuss their plans on this.
  • It may be that some further information is also required of the business e.g. latest management accounts; cash flow forecasts to allow their existing lender to assess the request and the implications on the overall borrowing and security position
  • It is recommended that firms complete a consent form and provide it to the new lender to allow them to liaise directly with their bank.

What are the banks committed to do?

  • Banks are committed to making sure the process of responding to the request for a deed of priority or waiver is handled as quickly and efficiently as possible, and to ensure a customer is given a response as quickly as possible as regards the agreement to proceed with the request or otherwise.
  • Banks are committed to lending responsibly and any proposed changes to the structure of the borrowing will be subject to usual credit and affordability checks. A bank will always have to therefore discuss the proposed arrangements with the customer. This is why it is important to know of the proposed arrangements at the earliest opportunity.

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