Overview of Credit Agreement


What is this document?

A Credit Agreement is a contract made between a borrower and a lender. It establishes how much money the borrower will lend, as well as the terms of the loan.  


When would I use this document?

A Credit Agreement is a special type of loan agreement where the lender provides a ‘credit facility’ for a ‘permitted loan amount’. The lender agrees to provide a maximum amount of credit, for a specified length of time, which the borrower may or may not draw upon to borrow money.


Who signs this document?

The Credit Agreement is signed by authorized representatives of the borrower and the lender.


More details about this document

A Credit Agreement provides the structure within which money will be lent to the borrower. The agreement will establish the maximum credit (permitted loan amount) which can be borrowed by the borrower in ‘drawdown amounts’ from time to time. Each time money is ‘drawn down’ the lender will have to sign a Promissory Note payable to the lender for that amount.

The borrower agrees to grant a security interest in collateral to secure payment of the Promissory Notes, in accordance with a General Security Agreement (which can be attached to the Credit Agreement as a schedule). This can permit the lender to dispose of the borrower’s collateral (e.g jewellery, shares, vehicles, accounts receivable etc.) to obtain the money owed if the borrower defaults on the loan.

Credit Agreements can range in length depending on the complexity of the loan and how the payments will be paid. In some cases loans can be repaid in a lump sum or can be paid in installments over a specified period of time. Lenders will include an interest clause in the document stipulating what interest rate is to be paid on the loan amounts, and when interest payments are due.

The agreement will provide for events of default and remedies on default, as well as the maturity date for the loan(s).


What are the core elements of this document?

The core elements include: Parties, Permitted Loan Amount, Payment, Interest Rate, Maturity Date, Default, Security Interest, Collateral, Warranties,Termination and Survival.

Some examples of additional clauses include Notice, Amendments, Cure Period, Expenses, Arbitration and Indemnification.


Related Documents

Promissory Note – a written promise to pay used to provide security for payment

Loan Agreement – an agreement that sets out the terms of a loan

General Security Agreement – an agreement that grants a security interest in collateral to ensure the repayment of a loan or other debt.


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