Commercial Loan Agreements: A Technical Guide for Microfinance Institutions

This guidebook introduces borrowing MFIs to important provisions of a standard commercial bank loan agreement. The guide book:

• Offers tips for drafting standard clauses;
• Helps borrowers understand:
  • The risks associated with some of the provisions of a loan agreement;
  • Departures from generally accepted provisions that may negatively affect their interests;
• Explains the difference between:
  • Loan agreement and a promissory note;
  • Way common law and civil law handle terms and practices.

The guide states that:

• Loan agreement is a contract between the lender and the borrower that sets forth the terms and conditions of the loan and the rights and obligations of both parties;
• Although a draft loan agreement comprises standard loan provisions, some clauses can be customized to reflect the individual features of the lending relationship;
• Borrowers need to negotiate loan terms to ensure that funds will be available to them when needed;
• Common law and civil law are different in their approaches to the rights of creditors and debtors;
• Borrowers should seek legal counsel whether the law governing the loan agreement follows common law or civil law principles and what the related implications are.

The guide book describes:

• Various loan agreement structures and standard provisions, including those relating to representations and warranties, covenants, events of default, remedies, enforcement and casualties;
• Commercial loan agreements and certain alternative loan products;
• Loan agreement terminology;
• Risks and benefits of some common loan structures.