B. Loan agreements
What is a term sheet?
A term sheet is a document setting out key terms of a proposed loan transaction. It is usually prepared by the lender (or its lawyers) and contains terms agreed by both the lender and the borrower after initial negotiation. A detailed term sheet may be helpful when the borrower looks to attract other banks to join a club loan (i.e. a loan being contributed by more than one lender).
One must bear in mind that the term sheet is not the loan agreement itself – it only provides the basis for drafting the actual loan agreement to be entered into and this is usually spelt out specifically in the term sheet. Whilst a term sheet is largely non-legally binding, it is typical for lenders to insist on the term sheet containing a binding undertaking on the part of the borrower to pay its costs and expenses in connection with the loan facility, even if the facility agreement is not signed.
What are some key clauses to look out for in loan agreements?
When a borrower takes out a loan from a bank, a loan agreement (which may take the form of a facility letter) would be entered into to set out the terms and conditions relating to the borrowing and repayment of the loan.
Despite the wide variety of loans available in the market, there are certain important provisions that are commonly present in a loan agreement:
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