An Unsecured Loan Agreement establishes credit terms without collateral, relying on borrower creditworthiness. This playbook focuses on interest provisions, representations, and remedies for nonpayment.
Why This Matters: Overbroad or inaccurate representations can trigger indemnity claims and reputational damage. Narrow, precise reps and defined survival periods prevent open-ended risk and litigation.
Negotiation strategy
If you're the Lender:
Ensure that representations are specific and limited in scope to avoid unnecessary liability. Negotiate for a short survival period and include carve-outs for known issues.
If you're the Borrower:
Require comprehensive representations to cover all material aspects of the Borrower's business. Insist on a survival period that extends beyond the closing date to protect against undisclosed liabilities.
Essential elements
1
Authority Representation
Power to enter agreement.
2
Financial Condition Representation
Accurate financial statements.
3
Compliance Representation
Adherence to applicable laws.
Action framework
ACCEPT
Propose edits when representations are too broad or lack specificity.
EDIT
Reject if representations expose to unlimited liability or are factually incorrect.
ADD
Add language for missing key representations on authority, financial condition, or compliance.
PRO TIP
Always align representations with the actual business operations and known risks to avoid future disputes.
Example clauses
FAVORABLE
Clear Authority Representation
"The Borrower represents and warrants that it has full power and authority to enter into this Agreement and to perform its obligations hereunder."
NEUTRAL
Standard Financial Condition Clause
"The Borrower represents and warrants that its financial statements fairly present its financial condition."
UNFAVORABLE
Overbroad Compliance Representation
"The Borrower represents and warrants compliance with all laws without exception."
Fallbacks
High-Risk Projects
In high-risk projects, representations should be more detailed and include specific risk factors to mitigate potential liabilities.
Cross-Border Transactions
For cross-border deals, ensure compliance representations address international laws and regulations to avoid jurisdictional issues.
Start-Up Companies
Start-ups may require more flexible representations due to evolving business models and financial conditions.
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