Unsecured commercial loans typically require excellent financial stability, good creditworthiness, and a proven debt repayment record. Borrowers often have to meet more conditions to obtain uninsured credit. Interest rates on an unsecured loan are also much higher, as the lender faces a much higher risk. If the borrower will not repay the loan, the lender has the right to take the guarantees directly. Depending on the size of the loan, the lender may come out with a bad deal; But it`s better to get something in return for a broken loan than to get nothing. Lending money under a commercial loan agreement requires the borrower to pay a certain amount of interest expressly stated in the terms of the loan. In addition, there are fixed dates when the borrower must make payments to the principal of the loan. Financial companies or covenants regulate the financial situation and health of the borrower. They define certain parameters in which the borrower must work. Contributions should be obtained from the borrower`s advisory accountants as soon as possible on their content. The dates on which these commitments are reviewed should be carefully examined, as should the separate financial definitions that will apply. Financial Covenants are a key component of any facility agreement and are probably the most likely to trigger a default event if they are breached.
More powerful borrowers can negotiate a right to remedy breaches of financial covenants, for example by investing more money in business. This is called the “equity cure”. Advances: A borrower must ensure that he has some flexibility to make advances (early repayment of credit) without additional costs being incurred if possible. However, advances are only allowed at the end of interest periods, which avoids the payment of termination fees and, in most cases, is in the best interest of the borrower. Particular attention should be paid to all mandatory instalments (e.g. B in the case of sale or, in the case of private companies, to a float) and all advance costs to be paid. The existence of a trade union has no influence on certain other provisions of an establishment agreement. For example, there will also be a definition of “majority lenders” whose consent is required for certain acts. It is normal that this definition is two-thirds of unionized banks by referring to the amount of their share in the loan. The borrower should ensure that all syndicated banks are “eligible banks” for the above reasons and, again, appropriate collateral may be appropriate.
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