3 Terms to Negotiate for a Loan Agreement
Whether it’s an application for a personal loan for a home or it’s a company looking for a commercial loan, terms matter. Essentially, a loan agreement is for a cash infusion. Just make sure its according to the right terms.
When is it necessary to negotiate for a loan agreement?
When do negotiations begin? Immediately. And what is on the table? Everything. Yes, there are standard terms but these usually depend on perspective – whether borrower or lender – and whether it’s a personal or commercial loan agreement. In general, a borrowing arrangement includes terms regarding defaults, covenants and and representations and warranties. These specific provisions make up a considerable bulk of what is being negotiated. Some loan agreements will set preconditions to funding and these must be considered as well. There is always a certain level of ambiguity that loan agreements present to both borrower and lender and extended negotiations always prolong closing.
What are some common clauses for standard agreements?
Standard clauses of loan agreements include defaults, covenants and representations and warranties. These specific provisions, along with provisions for change of control and reasonable insecurity, are included in a formal agreement. Defaults include defining what happens upon non-payment, who the guarantors and whom, beside the lender, may be affected. Financial covenants are intended to limit the type of risk a commercial loan can be subjected to by placing restrictions on the operations of the company. This includes keeping in line with a set line of ratios or particular balance sheet activities that won’t occur while the loan is undertaken.
A loan agreement template can help borrowers get a sense of standard provisions in a formal agreement. These clauses are meant to set out general terms for an ideal candidate so companies and individuals would benefit from consulting a lawyer to tailor the language and terms according to their specific needs and current consumer or company profile. When negotiating these 3 terms, make sure to focus on the most important goals or elements this cash infusion will provide. This will help give context for the loan’s necessity as well as the framework for the agreement.