Drawdown Clause Loan Agreement
The commitment fee is usually collected by the lender in order to compensate him for not earning interest, while the loan remains allocated but is not used. The creditor may also levy intermediation or modification fees which should be subject to an adequacy check. The amount that the lender has promised the borrower is usually called principal. In the operational loan clause, the lender agrees to lend the investor to the borrower. Default clauses define the circumstances in which a lender may grant the loan on demand, avoid obligations to repay new loans, require repayment of outstanding principal and interest, terminate the facility and enforce the guarantee. The credit agreement usually states that the credit must be used for specific purposes. If the money is not needed for this purpose, it must be repaid to the lender. Default interest (the interest rate a borrower must pay in the event of a material breach of credit agreements) is usually calculated with an additional margin of 1%, but if the borrower is unable to request a reduction, they should instead ask for additional time. Alternatively, covenants and default events can be used to settle changes in the basis of a credit agreement. The reason for this is that the lender agreed to lend money based on a particular purpose (for example.
B to buy an asset on which he will have a guarantee) and if the borrower uses it for something else (for example. B to repay an existing debt), the risk profile of the loan is much higher. The purpose of the loan is also important in determining whether the National Credit Code applies to the credit agreement. For more information, see our article “Does the National Credit Code Apply to My Credit Agreement?” Common covenants include conditions precedent for the use of the loan, Covenants, to ensure that the borrower`s status remains unchanged and Covenants with respect to default events in which lenders can obtain early repayment in circumstances where the lender considers the loan to be threatened. They can be extended to guarantors, a parent company or even a subsidiary. Insurances and guarantees are usually repeated regularly to ensure that the borrower`s status remains unchanged throughout the agreement. Lenders want this to apply on a daily basis throughout the loan, but borrowers want it to only apply to drawdown and interest dates. The nature and extent of carry-overs inserted in the credit agreement depend, for example, on what the loan is, the negotiating position of each party, the guarantee or unsecured of the loan and the amount of the loan. If the borrower has a low risk, he has a higher bargaining power vis-à-vis the lender than a high-risk borrower and therefore generally does not need to meet as many conditions. . .