If your company has external shareholders, equity investors, or a board, new borrowing is a material financial decision that typically requires disclosure — and sometimes approval. Here is how to handle this well.
Does new borrowing require shareholder approval?
This depends on your articles of association and shareholder agreement. Common scenarios:
- No financial covenants in shareholder agreement: Directors can usually borrow in the ordinary course of business without shareholder approval, within limits set by their authority. Check your articles.
- Shareholder agreement with borrowing thresholds: Many investor agreements specify that borrowings above a certain amount (for example, £50,000 or £100,000) require investor consent. Review your agreement.
- Reserved matters: If the shareholder agreement lists borrowing as a reserved matter, any new facility may need consent regardless of size.
If in doubt, ask your company solicitor before committing to a facility.
Disclosing borrowing in board updates
If your company has a board or investor reporting cycle (monthly or quarterly), include new borrowing in your next report. A clear disclosure covers:
- The facility type and amount.
- The purpose (what the funds will be used for).
- The cost (interest rate or flat fee and total repayment).
- The repayment schedule (monthly amount and term).
- The impact on net debt and cashflow forecasts.
Framing borrowing positively
Taking on debt is not inherently negative — it is a tool for growth or cashflow management. Frame borrowing in the context of the problem it solves and the return it generates:
- "This facility bridges our receivables gap in Q3, enabling us to maintain staffing levels during our seasonal slow period without disrupting growth trajectory."
- "We used a short-term facility to fund the stock order ahead of our largest contract. The cost of the facility (£X) is materially lower than the gross margin on the contract (£Y)."
What investors generally want to know
Experienced investors will want to know that borrowing was:
- Taken at a proportionate cost relative to the use.
- Within the company's ability to repay from trading cashflow.
- Disclosed promptly, not discovered later during due diligence for a future raise.
See also: How business borrowing affects your company's financial ratios, Keeping business borrowing proportionate to revenue, Common mistakes to avoid with business borrowing.