A loan contract is the document in which a lender – usually a bank or other financial institution – sets out the conditions under which it is willing to provide a loan to a borrower. Loan contracts are often referred to by their more technical name, “easy agreements” – a loan is a bank “facility” that the lender offers to its client. This guide focuses on the most common conditions of an easy agreement. Representations and guarantees: these should be carefully considered in all transactions. It should be noted, however, that the purpose of insurance and guarantees in a facility agreement differs from its purpose in purchase and sale contracts. The lender will not attempt to sue the borrower for breach of representation and guarantee – instead, it will use an infringement as a mechanism to call a default event and/or ask for repayment of the loan. A disclosure letter is therefore not required with respect to insurance and guarantees in the facility agreements. Loan contracts reflect, like any contract, an “offer,” “acceptance of offer,” “consideration” and can only relate to “legal” situations (a term loan contract involving the sale of heroin drugs is not “legal”). Loan contracts are recorded in their letters of commitment, agreements that reflect agreements between the parties involved, a certificate of commitment and a guarantee contract (for example. B a mortgage or personal guarantee). The credit contracts offered by regulated banks are different from those offered by financial firms, with banks benefiting from a “bank charter”, which is granted as a privilege and which includes “public confidence”. The lender should only have the right to demand repayment of the loan in the event of a delay and lawsuit.
If the delay default has been corrected or reversed, the lender`s right to accelerate should cease. As a general rule, there are “standard” trading points that are advanced by borrowers, for example. B a standard definition of major adverse amendments/effects generally refers to the effect that may affect the debtor`s ability to meet his obligations under the facility contract. The borrower may attempt to limit this obligation to his own obligations (and not to other obligations), the borrower`s payment obligations and (sometimes) his financial obligations. The types of loan contracts vary considerably from sector to sector, from country to country, but, characteristically, a professional commercial loan contract will have the following conditions: advances: a borrower should ensure that he has some flexibility to pay advances (early repayment of the loan) without paying additional fees if possible. However, advances are only allowed at the end of interest periods, which avoids the payment of breakage fees and, in most cases, is in the best interests of the borrower. Particular attention should be paid to all mandatory advances (for example. B in the event of a sale or, for private companies, on a float) as well as at any down payment costs to be paid.
Before entering into a commercial loan agreement, the borrower first decides on his affairs concerning his character, his creditworthiness, his cash flow and all the guarantees he must put in collateral for a loan.