For commercial banks and large finance companies, "loan agreements" are usually not categorized although "loan portfolios" are often broadly characterized into "personal" and "commercial" loans while the "commercial" category is then subdivided into "industrial" and "commercial real estate" loans. "Industrial" loans are those that depend on the cashflow and creditworthiness of the company and the widgets or service that it sells. "Commercial real estate" loans are those that repay loans but that depend on the rental revenues paid by tenants who lease space, usually for extended times. More granular categorizations of loan portfolios exist but these are always variations around the larger themes. The loan agreements originated by commercial banks, savings banks, finance companies, insurance organizations, and investment banks are very different from each other and all feed a different purpose. "Commercial banks" and "Savings banks", because they accept deposits and benefit from FDIC insurance, generate loans that incorporate the concepts of the "public trust". Prior to interstate banking, that "public trust" was easily measured by State bank regulators who could see how local deposits were used to fund the working capital needs of local industry and businesses, and the benefits associated with those organization's employment. "Insurance" organizations, who collect premiums for providing either life or property/casualty coverage, created their own types of loan agreements. "Banks" and "Insurance" organizations' loan agreements and documentation standards evolved from their individual cultures and were governed by policies that somehow addressed each organizations liabilities (In the case of "banks", the liquidity needs of their depositors; in the case of insurance organizations, the liquidity needs associated with their expected "claims" payments). "Investment banks" create loan agreements that cater to the needs of the investors whose funds they attempt to attract; "investors" are always sophisticated and accredited organizations not subject to bank regulatory supervision and the need to cater to the public trust. Investment banking activities are supervised by the SEC and their main focus is on whether the correct or proper disclosures are made to the parties who provide the funds. Types of Loans: • bilateral loans •
syndicated loans (a syndicated loan is one that is provided by a group of lenders and is structured, arranged, and administered by one or several
commercial banks or
investment banks known as
lead arrangers). Categorizing loan agreements by type of facility usually results in two primary categories: • term loans, which are repaid in set installments over the term, or • revolving loans (or
overdrafts) where up to a maximum amount can be withdrawn at any time, and interest is paid from month to month on the drawn amount. Within these two categories though, there are various subdivisions such as
interest-only loans, and
balloon payment loans. It is also possible to subcategorize on whether the loan is a
secured loan or an unsecured loan, and whether the
rate of interest is fixed or floating. Promise to Repay Forms of loan agreements vary tremendously from industry to industry, country to country, but characteristically a professionally drafted commercial loan agreement will incorporate the following terms: • Parties to contracts with their addresses • Definitions or interpretation provisions • Facility and purpose • Conditions precedent to utilization • Repayment provisions • Prepayment and cancellation provisions • Interest and interest periods • Provisions dealing with
gross-up in relation to any
withholding imposed • Payments provisions •
Representations of the
borrower • Representations of the lender • Covenants of the borrower • Events of
default • Remedies in the event of default • Provisions for penalties and liquidated damages • For syndicated loans, provisions relating to the facility agent and security agent and voting of the lenders • Formulae for calculations • Provisions for fees of the lenders • Provisions for expenses •
Securitization provisions • Amendments and waivers provisions • Covenants relating to changes in parties •
Set-off clause •
Severability clause •
Counterparts clause • Addresses for notices • Language provisions •
Choice of law clause •
Forum selection clause • Appointment of a
process agent ==See also==