• Careers
  • Contact Us

Bank Borrowing and Security for Independent Schools: Key Points for Planning a Successful Outcome

on Thursday, 04 October 2018.

This article summarises some of the principal legal and planning issues that Governors and School Bursars will need to consider when putting bank finance in place to fund projects. As ever, forward planning is key.


Consider when you will need the funding and project plan back from that point, including plenty of slippage time, and taking into account the issues considered below. You should, in ordinary circumstances, assume it will take at least six months or so from initial conversations with banks to draw down.

Heads of Terms

These will outline the main commercial terms (including interest rate, security requirements, any financial covenants, bank legal and valuation costs and term) from your preferred bank. You will probably invite at least two banks to quote, including your incumbent. Consider how quickly the bank can move from indicative terms to final heads, credit approval and completion, as this process is now highly centralised with little autonomy at local relationship level.


At the outset ensure you have the requisite authority in your constitutional documents to borrow and grant security, and check the process by which your School must authorise borrowing and security - including timing the cycle of governors meetings and powers of delegation to finance committees if relevant. Your governing body minutes will need to be in a form the bank are happy with.

Security and the Charities Act 2011

Banks will almost certainly require security over assets (usually land and buildings) for both term loans and overdrafts. If your school is a charity (and you are charging property assets) you will need to obtain a section 124 report from a suitably qualified person to cover whether: (1) the loan is necessary; (2) the loan terms are reasonable; and (3) the charity is able to repay the loan.

Can You Charge the Land (Permanent Endowment)?

This may be an issue for charitable schools which have incorporated as companies limited by guarantee in the past (as most have), but where land is held outside the corporate entity as trustee of earlier trusts. This is a complex issue and beyond the scope of this article, save to flag that if these circumstances arise detailed advice will need to be taken to ensure security can be given, and that conflict issues for governors (who may have split roles as governors and trustees) are addressed.

Loan Agreements

Although the loan and security standard terms are unlikely to be negotiable to any great extent, you will need to carefully check they reflect the Heads of Terms and that you can deliver on your obligations - whether to meet financial covenants, provide information on time and in a particular format, or comply with prohibitions on prescribed activities without hampering your day to day operations.

We have been advising independent school clients on bank borrowing for many years and are always happy to have a preliminary discussion with clients about their requirements without obligation. If you would like to discuss future funding plans please contact David Emanuel on 0207 665 0848 or Robert Collier on 0117 3145 472.

Leave a comment

You are commenting as guest.