When you take out a commercial loan to finance your business, you’ll be required to sign a loan agreement and more than likely security documents to support the lending under the loan agreement to confirm that you:
- agree to accept the terms of loan and security documents and the loan will repay within a given timeline; and
- understand and agree to the consequences of defaulting on the loan.
To ensure that you are signing the relevant agreement willingly and are acting in accordance with the law, you’re likely to need a witness when you sign.
A common question we receive is whether a spouse can be a witness, particularly for family businesses where the spouse is also part of the business.
Our Banking and Finance law expert, Dashna Morarji-Sagoo offers her advice.
What does the law say?
“For commercial loans and supporting security documents, legally a witness can be anyone,” said Dashna.
“However, it is generally best to choose a witness who has no financial or other interest in the loan.
“Lenders may also have their own internal policies as to who can witness loan agreements and security documents.
“I usually recommend that an independent third party witnesses the signing of any binding document – someone who is not related to either party and who does not benefit from the loan is the best choice.
“For example, if the paperwork is prepared by your solicitor and ready for a signature, they are probably the best witness.
“Some lenders do actually require that loan documents and security documents are signed before a solicitor. The solicitor may charge a small fee to be a witness of around £10 – £20, although some won’t, especially if they are representing you in the transaction.”
For advice on drafting and signing commercial loan agreements, please contact Dashna at DashnaMorarji-Sagoo@palmerslaw.co.uk or by calling 07903 631780.