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Loan Documentation (I) (Security for Bank lending (Attributes of good…

- - - - Positive covenants: Things borrower agree to do
        
        Maintain acceptable balance sheet ratios
        
        Grant security interest in collateral
        
        Insure assets
        
        Maintain assets and properties in good condition
      - Negative covenants: Things borrower is prohibited from doing
        
        Give profit sharing of bonuses in excess of amounts agreed
        
        Make capital purchases in excess of given amount
        
        Sell/lease property/assets without bank's consent
        
        Repay loans from owners/shareholders
      - Warranties: which provides assurance by one party to the other party that specific facts/conditions are true or will happen
        
        Borrower has good titles to assets
        
        Borrower has complied with legislation and not under litigation
        
        Financial statements are genuine to reflect true financial position to borrower
        
        Borrower has filed and paid all taxes
    - - Divest interest in certain business to repay loan
      - Assign term life insurance to bank
      - Sell certain asset/property within a certain period of time
    - - Statement of purpose
      - Specify fees, interest rates, terms of repayment
      - State the loan amount and type
      - Define terms used
      - Describe the respective lenders and borrowers
    - - Bank has the right to:
        
        request for accelerated payment of loan
        
        re-negotiate terms in the event of bankruptcy/non-repayment of indebtedness/material falsity of representation/default under provision in loan agreement
- - - - A written agreement between lender and borrower which creates a security interest in subject property or fixtures
      - A valid security agreement is in writing and signed by borrower. It contains a "granting" clause, which borrower gives lender a security interest in the collateral to secure payment. It also contain description of collateral and obligations secured by collaterals
  - - - Consideration given
      - Debtor has rights (title) in collateral
      - Written security agreement that establishes legal relationship