What is Eleventh Amendment and Waiver to Loan Agreement?
The Eleventh Amendment and Waiver to Loan Agreement is a contract which amends the terms and conditions between the loan borrower and the bank. This contract amends and modifies the loan agreement primarily on the basis of inability of the borrower to repay the loan, for increasing the line of credit. A financial consultant is typically required to be appointed by the borrower company. Such financial consultant would then manage the cash-flow of the borrower company to prevent any further defaults. Such a contract typically results in a waiver of loan in some or the other measure. For example, such an agreement may relax certain events of defaults as contained in the original agreement.
What is the purpose of Eleventh Amendment and Waiver to Loan Agreement?
The main purpose this contract serves is to relax the terms and conditions of loan repayment and enable the borrower to repay the loan. In an unsecured debt, where no security is placed as a pledge, such a contract may be resorted to. It gives the borrower a sense of security and assurance. At the same time, the lender can place a financial consultant with the borrower and hence ensure that no further amendments or waiver is required.
Inclusions in the Eleventh Amendment and Waiver to Loan Agreement?
A waiver to loan agreement should include references to the original loan agreement. The parties to the agreement should be mentioned clearly. All the parties to the original agreement should be made parties to this contract.
Key Terms of the Eleventh Amendment and Waiver to Loan Agreement?
Key terms to be included in this contract are as follows:
- Amended definitions: If any definitions vary from those provided in the original agreement, then the same may be included herein.
- Repayment schedule: Modified repayment schedule should be inserted in the document.
- Interest Rate: If the interest rate varies then the varying interest rate should be mentioned. Also, if the nature of interest is changing, the same should be mentioned.
- Effect of the amendment: What would be the resultant effect of the stated amendments need to be captured.
- Waiver to loan: This clause would include the relaxations granted pursuant to this contract.
- Appointment of Financial consultant: This clause would enable the lender to appoint a financial consultant for the borrower.
- Mortgage alterations: If this is a secured debt transaction and if any alterations to the mortgage are to be made, then the same may be recorded herein.
Drafting the Eleventh Amendment and Waiver to Loan Agreement?
The following guidelines may be followed while drafting the waiver to loan agreement:
- Negotiation on key terms is essential. As this is an amended agreement, it is pertinent that all amended terms are agreed upon by the parties.
- Write the amended terms in clear and simple language.
- It is pertinent to mention that all the clauses which have not been expressly stated as modified remain the same.
- The security provided (if any) should be described again. In case additional security is obtained, the same may be mentioned and described.
- Have the original loan agreement at hand before you sit down to draft this agreement.
Benefits of the Eleventh Amendment and Waiver to Loan Agreement?
Having such an agreement in place has the following benefits:
- The borrower gets some time to arrange for finances.
- It avoids disputes in case of default on genuine grounds.
- It allows the lender to manage the cash flows of the borrower.
- It does not render the original loan agreement as inflexible or stringent.
- It leaves ample scope for negotiation.
- If one has not provided security in the original debt agreement, one may demand for the same in the amended agreement.
- In the case of cash-strapped companies, a waiver to loan and relaxation of certain requirements goes a long way.
Cons of the Eleventh Amendment and Waiver to Loan Agreement?
Along with its advantages, such a contract also has its disadvantages. The cons are the following:
- Negotiations for amended terms are a problem. It is not always that the lender and borrower would agree on the same terms.
- There may be a case where the borrower may not like the lender’s interference in his financial affairs.
- It postpones effective action by extending the time schedule for repayment of the loan.
- It, in a way, makes the original loan agreement redundant.
A waiver to loan agreement is important in cases where long-standing relationships are intended to be formed and parties do not want to take legal recourse for one or two defaults. Typically, a company and its long-standing bank may enter into such an agreement or a company and a public bank may give effect to such a contract. In the event, the borrower does not comply with the terms and conditions, the dispute resolution clause may be invoked.
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