Loan
No two loans are alike and for every loan transaction, the lender generates an internal Credit Approval Summary (CAS), which typically provides a wealth of information including a basic narrative of the anticipated project and loan transaction, the history of lending with the entity, individuals, and other projects, if any, that the borrower is/has been involved in. Lenders do not always provide the CAS to counsel; however, if you are acting as Lender’s counsel in the transaction, you should always request a copy of the Credit Approval Summary to assist in your basic understanding of the transaction.
Since no two loans are alike, lender’s counsel has the responsibility of adapting loan documents to satisfy both lender and borrower while clearly representing the transaction by incorporating the differences of each transaction in the drafting of the documents. There are different borrowers, borrowing entities, collateral (real and personal property) guarantors, interest rates terms, conversion terms, liquidity requirements, insurance requirements, financial requirements, reporting requirements, covenants, and agreements. The Term Sheet represents the specific terms and conditions the lender will lend upon.
The final building block in understanding the transaction is the Commitment Letter. The Commitment Letter is issued to the Borrower by the Lender once the terms and conditions of the loan have been determined, approved and reviewed by the appropriate departments of the lending institution, including but not limited to identification of the borrower, loan amount, loan collateral, guarantors, term, and interest rate. The Commitment Letter typically also sets forth any prepayment penalties, financial covenants, appraisal contingencies, environmental report contingencies, zoning requirements, insurance requirements, and other reporting requirements. The Commitment Letter is the proposal to the borrower by the lender of the terms and conditions upon which lender is willing to lend funds to the borrower.
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