Credit Agreement

tl;drA formal contract between a lender and borrower establishing the terms and conditions of a loan or line of credit.

Credit agreements specify interest rates, repayment schedules, collateral requirements, and various covenants that the borrower must maintain throughout the loan term.

Consider a company securing a $10 million revolving credit facility from a bank. The credit agreement might require maintaining specific financial ratios, limit additional borrowing, and restrict dividend payments. Regular financial reporting and covenant compliance certificates ensure the borrower meets these requirements.

Managing credit agreements requires understanding both legal and financial aspects of lending relationships. Organizations must monitor covenant compliance, plan for reporting requirements, and maintain communication with lenders.

Back to the glossary