Borrowing from a private investor: a borrower-friendly loan with security that only bites on default

At a glance

A Manchester co-living business needed funding to grow and found it with a private investor rather than a bank. We acted for the borrower on a mid six-figure loan. The investor wanted protection; our client wanted the freedom to run its business without a charge over its assets from day one. The answer was a loan that stays unsecured while the borrower keeps to its terms, with security documents agreed at the outset that only take effect if an event of default occurs. The facility completed in early 2026.

The client and the objective

The client operates shared living accommodation and wanted capital to take on more property. Private investors can move faster and more flexibly than banks, but their first drafts tend to be written entirely for the lender. The client's priorities were clear: a loan it could comfortably perform, a fair chance to put things right if something went wrong, and no security over its assets unless it actually defaulted.

The deal

• A term loan from a private investor in the mid six figures, with agreed interest and repayment terms.
• Covenants and events of default drafted from the borrower's side, proportionate to a growing property business.
• Security documents negotiated and agreed at the same time as the loan, but conditional: they only become enforceable on an event of default.
• The lender represented by its own advisers throughout.

Key legal issues and how we solved them

Security that only applies on default

A lender asking for security is normal. What matters to a borrower is when that security bites. A charge taken at the outset can restrict what a business does with its assets, complicate future borrowing and worry other funders. By agreeing the security documents up front but making them conditional on an event of default, the lender knew exactly what protection it would have if things went wrong, and the borrower kept full freedom to operate while things went right.

What borrower-friendly drafting means in practice

The protection for a borrower sits in the detail: events of default limited to genuine failures rather than technical breaches, grace periods and the chance to remedy a problem before the lender can act, covenants that reflect how the business actually trades, and the ability to repay early. Each of these was negotiated with the lender's advisers so that the final agreement was balanced rather than one-sided.

Keeping the lender comfortable

A borrower-friendly loan still has to be one the lender will sign. The conditional security gave the investor certainty about its position in a default, which made it easier to agree softer terms elsewhere. That trade-off is what got the deal done.

Outcome

The loan completed in early 2026. The client received the funding on terms it can perform, without a charge over its assets during the life of the loan unless it defaults.

What this deal shows

• A private lender's first draft is a starting point, not a standard; most terms can be negotiated.
• The question is not only whether a lender takes security but when it can use it.
• Grace periods and remedy rights are often worth more to a borrower than a lower interest rate.