The 7 Clauses Of A Commercial Loan Agreement

It comes as a surprise to some when they are told that the vast majority of businesses that exist require credit from time to time, ranging from complex commercial loans to simple ’30 days to pay’ lines of credit from their suppliers. While getting your supplier to allow a month to pay is a relatively simple exercise, obtaining a commercial loan usually is not, and normally requires a commercial lawyer to advise upon it.

The reason is that commercial loans are given within the framework of legally binding obligations on both the bank that is lending and the business which is borrowing. The loan agreement is likely to be prepared and created by the lender, therefore it is imperative that the business or the individual who is committing to the commercial loan fully understands what the terms and their obligations are.

For a start within a commercial loan agreement, there tend to be several key clauses. These usually number seven, however, each bank may have additional clauses based on the specifics of the loan. If we stick with the standard seven clauses, here is a brief explanation of what each of them is and what they mean.

Introductory Clause

This is found in most legally binding agreements and in the case of a commercial loan agreement basically contains the basic information relating to the lender and the borrower such as their names, addresses, and any relevant dates pertaining to the agreement.

Interpretation Clause

This is basically included to ensure that there is no ambiguity with regards to the terminology and the phraseology used throughout the loan agreement. It can include a definition of what each term means, similar to a glossary. Read More