Commercial Loan Agreements: A Technical Guide for ...

Commercial Loan

Agreements

A Technical Guide for Microfinance Institutions

Commercial Loan Agreements

A Technical Guide for Microfinance Institutions

Consultative Group to Assist the Poor Prepared for CGAP by Cleary, Gottlieb, Steen & Hamilton, LLP

? 2006 Consultative Group to Assist the Poor/The World Bank

All rights reserved.

The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The Consultative Group to Assist the Poor encourages dissemination of its work and will normally grant permission promptly and freely.

Consultative Group to Assist the Poor 1818 H Street, N.W. Washington, DC 20433

Internet : Email: cgap@ Telephone: +1.202.473.9594

Table of Contents

Acknowledgments

v

Purpose of Guidebook

1

Negotiating Perspective of the Borrower

3

General Overview

3

Preliminary Considerations

3

Term Sheet

3

Alternatives to a Loan Agreement

4

Type of Loan

8

Standard Loan Agreement Provisions

15

Introductory Provisions

15

Recitals

15

Definitions

15

Financial Terms

16

Commitment to Lend

16

Disbursements

17

Repayment of Loan Principal

18

Voluntary Prepayment of Loan Principal

19

Fixed Interest Rate

21

iv

Table of Contents

Floating Interest Rate

21

Interest on Late Payments

22

Fees

23

Expense Reimbursement

24

Performance Commitments

25

Representations and Warranties

25

Covenants

28

Events of Default

32

Remedies

36

Enforcement

37

Confidentiality

38

Entire Agreement

39

Acknowledgments

The Consultative Group to Assist the Poor would like to thank the following Cleary, Gottlieb, Steen & Hamilton LLP staff who were instrumental in developing and writing this technical guide: Francesca Lavin, Penelope Christophorou, Jeremy Pam, Janet Morris, Andrew Aspen, Yasmin Moorman, Carlos Lozada, Jean Arakawa, Sameera Fazili, and Clara Vondrich. We also thank various industry practitioners, particularly Deborah Burand, Linda Valentine, and Dawn McGee, for their input.

v

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