Controlling a Borrower’s Business Without Taking Control Through the Loan Agreement

Often times, a commercial banker may want to control their commercial borrowers’ business without taking control in an effort to protect the bank’s investment. It is never advisable for any bank to dictate the day-to-day decisions of any organization otherwise; the bank may face lender liability if the borrower follows the banks instructions but fails during the process. So, how can you control a commercial borrower without taking control of their business?

All loans have loan agreements. However, some loan agreements are more tangible than others. At one end of the spectrum are lengthy agreements that have been formally drafted by legal counsel. In the middle are pre-printed loan agreements, usually containing a security agreement that banks may use for nearly any type of credit extended. At the other extreme are completely informal oral agreements, which have little significance.

Many financial institutions take the position that loan agreements are simply too complicated and often attempt to avoid using them in loan transactions. However, loan agreements can benefit both the lender and the borrower. While the borrower must have sufficient latitude to operate the company, certain limitations must be placed on the business due to the financial institution’s credit exposure. Provisions in the loan agreement must be drafted to guarantee adequate cash is conserved by the borrower to ensure continued financial viability and to repay the financial institution’s loan.

In this webinar, we will discuss formal loan agreements that are generally used for commercial borrowers. In general, loan agreements are used for the following reasons:

• Sets forth the agreement between the financial institution and the borrower by clearly and concisely defining the duties and responsibilities of both parties during the term of the loan
• Establishes restrictions and qualifications on the borrower’s activities and financial condition, which are set out by affirmative and negative covenants
• Causes the borrower and lender to work through various contingencies thus preparing an alternative plan of action that both parties can agree to abide by should the original plan become inoperable
• Serves as a communication tool and monitoring device by requiring the borrower to submit certain documents at specified times and to require notification of the lender about certain plans of the borrower (Example: periodic financial statements and financial projections).

What You’ll Learn:

• Define the loan agreement
• Know When a loan agreement is required to monitor your borrowers’ activities
• Understand the rights afforded by the loan agreement
• Know the key covenants to insert to monitor your borrowers’ financial condition
• Understand the relationship of the loan agreements with other loan documents

Who Should Attend?
This informative session is designed for Chief Risk Officers, Senior Credit Officers, Senior Loan Officers, Credit Administration Officers, Loan Review Personnel, Commercial Loan Officers, Consumer Loan Officers, Branch Managers, Credit Analysts, and Special Assets Officers.

Presenter Bio

Jeffery W. Johnson, MBA – Bankers Insight Group

Jeffery Johnson has been in financial services more than 40 years. He has been VP and senior lender for a large regional bank and SVP and commercial banking division manager for a community financial institution. Most of his career has been spent in credit administration, lending, business development, loan review, management, and training and development. Over the last 17 years, Johnson has provided training for several banking associations and individual financial institutions nationwide.

Johnson holds a bachelors in accounting from Morehouse College in Atlanta, an MBA in finance from John Carroll University in Cleveland, a Diploma of Graduation from the Prochnow School of Banking at the University of Wisconsin-Madison, and a Graduate Certificate in Bank Management from the First American Management Institute at the University of Pennsylvania’s Wharton School of Business.

Registration Options