Commercial Loan Agreement Page 10
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14Social Enterprise Associates’ Tip Sheet #7: Commercial Loan Agreement
performance of bids or contracts in the ordinary course of
As you read through these negative covenants in
business, (3) in favor of the Bank, and (4) as may be
Section 6, notice that you give up considerable
specified in Section 7 of the Schedule;
freedom over the future of your business (e.g.,
you can‟t sell it, or sell significant assets)
____(d) Guaranties. Become a guarantor, surety or
throughout the term of the loan (unless the bank
otherwise liable for the obligations of any other person,
consents otherwise).
firm or corporation, except that the Borrower may endorse
checks or other instruments for deposit or collection in the
ordinary course of business;
____(e) Sale of Assets. Convey, sell, transfer, lease or sell
and lease back any of its property, assets, or business in any
fiscal year in excess of 10% of its assets at the start of such
fiscal year, except for inventory disposed of in the ordinary
course of business;
____(f) Investments and Loans. Make or suffer to exist any
investments in or loan or advances to any other person,
firm or entity, except commercial paper rated P-1 and A-1
+ by Moody's and Standard & Poor's respectively, direct
obligations of the United States government and its
agencies, and obligations of the Bank;
____(g) Mergers. Merge or consolidate with or into any
other firm or entity or enter into any joint venture or
partnership with any other person, firm or entity;
____(h) Capital Expenditures. Make capital expenditures in
any 12-month period in excess of _______, in the aggregate
for such period.
____(i) Compensation. Permit any withdrawals from or
distribution of the assets of the Borrower except as
reasonable compensation for services actually rendered,
and such further payments in cash or in kind, including
without limitation dividends (except stock dividends),
withdrawals, distributions, salary, compensation, and
bonuses shall be limited to the persons and amounts set
forth in Section 8 of the Schedule; and
____(j) Leases. At any time enter into or suffer to exist any
agreement to lease, as lessee, any real or personal property,
except leases in effect as of the date hereof, having
aggregate annual rental payments not more than _______ .
7. DEFAULTS; REMEDIES. The occurrence of any one
You absolutely cannot neglect to fully
or more of the Additional Events of Default set forth in
understand everything about Section 7. This is
Section 9 of the Schedule or any of the following events
where the bank will describe exactly what it will
consider a default: it isn‟t just when you fail to
shall be an event of default:
pay on time. Many fact-scenarios can trigger an
____(a) Misrepresentation. If any representation or
event of default.
warranty made by the Borrower in this Agreement, in any
Related Document or in any other writing delivered by the
Borrower to the Bank in connection with the Loan shall
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