When applying for and obtaining a business or commercial loan, the lender will have its own procedures to follow and forms to complete. These is no industry standard loan agreement, and there are many items to consider when negotiating the terms of a loan and in determining whether to accept it. The following are some of these items.
What is the interest payable? How is the interest rate calculated? (Calculations based on a 360 day year are more unfavorable for the borrower than those based on a 365-day year.) What is the default rate of interest and is it competitive? Is the interest rate coupled with all fees, competitive with other available loans? Is the interest rate fixed or variable?
What are the monthly or other periodic payment obligations? When is the final principal payment due? Is there a right to extend the due date of the loan?
Are there any loan fees, commitment fees, placement fees, points payable upfront? Are there any ongoing fees or charges during the life of the loan?
- Are the loan proceeds restricted for certain uses? Are the uses broad enough?
- Representations and Warranties of the Borrower:
Due organization of the borrower Duly qualified to do business Authorization to do the loan Enforceability of the loan agreement Accuracy of the borrower’s financial statements No litigation Compliance with laws Payment of all taxes and filing of all tax returns No adverse change in the business Valid corporate existence of the borrower List of subsidiaries Compliance with ERISA Good and marketable title assets without liens and encumbrances other than those disclosed Obtaining of all required consents No violation environmental problems Ownership of intellectual property Appropriate insurance in place Full disclosure to lender Solvency of borrower
- Affirmative Covenants of the Borrower:
Periodic financing of financial statements Periodic reports sent to lender Inspection rights Payment of indebtedness Insurance obligations Maintenance of existence and properties Books and records Notices Payment of banker’s legal fees and exposure Compliance with loan agreement Compliance with laws Compliance with ERISA Indemnification No prepayment of loan?
Restrictions on further indebtedness Restrictions on incurring liens and encumbrances Maintenance of net worth and other Maintenance of certain financial covenants Prohibition on mergers and consolidations Restrictions on acquisitions No payment of dividends No purchase or retirement of stock No allowances or loans No sale of assets except in the ordinary course of business Not engage in transactions causing ERISA problems
Failure to pay Breach of representation or warranty of borrower Breach of covenants Bankruptcy or insolvency of borrower Various judgments against the borrower
Execution of all required documents Certified copy of Board resolutions
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