2. Conditions precedent

2. Conditions precedent

Conditions precedent clauses set out conditions that need to be fulfilled before the borrower can make a drawdown. 

A common condition precedent is the delivery of the borrower’s identification documents (or in the case of a company, its constitutional documents) and the borrower’s financial information. The provision of information under conditions precedent clauses serves the purpose of reassuring the lender of the enforceability and validity of the loan agreement and the prospect of recovering the loan from the borrower.

Conditions precedent for a loan taken out by a company are usually more complex than those for a loan taken out by an individual. For example, a company may be required to pass board resolutions and shareholders’ resolutions to approve the taking out of the loan, or where appropriate, the granting of security. For loans to a company, banks may require the provision of legal opinions which will opine on, amongst other things, the status of the company(ies) and whether documents entered into are duly executed.

Other conditions precedent may also be required depending on the type of loan. For example, in the case where a mortgage over a property is granted as security for the loan, the bank would require the delivery of the title deeds to the property and a valuation report showing that the value of the subject property is not lower than a certain threshold.