How to review key terms for Loan Agreements

Review a loan agreement from the borrower’s perspective by establishing the operative document set, testing the full cost and availability of credit, and tracing covenants through definitions, defaults, and remedies. Record each material finding against a source citation, the borrower’s business needs, and an accountable decision owner. The deliverable is a prioritized contract review checklist that separates confirmed restrictions from missing evidence, identifies proposed changes and acceptable fallbacks, and gives finance and legal a clear basis for approving—or withholding approval of—the negotiated terms.

When to use this workflow

Use this workflow when borrower counsel or an in-house legal team receives a new facility draft, refinancing package, or material amendment. It supports key-term review before negotiation or approval, not a complete closing checklist or post-closing compliance program.

The scope is US commercial lending. Start with the governing-law provision. New York General Obligations Law § 5-1401(1) permits qualifying transactions totaling at least $250,000 to select New York law without a reasonable relationship to the state, subject to its labor or personal-services, personal/family/household-services, and UCC exclusions. It is not a forum-selection rule or assurance that every loan term is enforceable.

Consumer lending, usury, collateral perfection, bankruptcy effects, and jurisdiction-specific enforceability require separate analysis where implicated. Contract rights depend on the operative language, governing law, facts, and deal context. The checks below are workflow recommendations, not legal requirements.

What you need

Collect the agreement, amendments, waivers, fee letters, guarantees, security documents, and incorporated schedules. Obtain comparison versions and identify whether each document is proposed, signed, or effective subject to conditions.

Request these borrower-specific inputs:

• The approved term sheet, financing purpose, expected draws, and refinancing assumptions.
• The group structure, proposed obligors and guarantors, and intended collateral.
• Finance’s debt schedule, forecast, covenant calculations, and accounting assumptions.
• Planned acquisitions, distributions, investments, asset sales, and intercompany transactions.
• Restrictions under other debt documents and known consent requirements.
• A dated borrower negotiation checklist with priorities, fallbacks, and approval authority.

Ask treasury which provisions could prevent an expected draw or force an unplanned repayment. Ask operations which reporting duties depend on subsidiaries or unavailable data. Use those answers to set review priorities.

Use the template

The companion template is Loan Agreements — Contract review checklist. Copy this table into your working document or spreadsheet. Use one row per decision; split a clause if it creates distinct economic and operational issues.

Assign stable document IDs, such as LA-01 for the agreement and FL-01 for a fee letter, together with version dates. Cite sections and pages or identifiable paragraphs. Spreadsheet cell references can link calculations but cannot substitute for contractual authority.

Keep a short excerpt or faithful paraphrase in Evidence. Use Term / dependencies for definitions, exceptions, related documents, and triggers. Label unavailable documents as missing evidence. Reserve “not present” for language sought but not found in the identified materials reviewed.

Explain priority through liquidity exposure, strategic restrictions, operational burden, or legal uncertainty. Certainty concerns the evidence, not the issue’s importance. Action / owner identifies who must verify, negotiate, or approve; Status distinguishes open questions, negotiation requests, and approved concessions.

Step by step

1. Establish the operative document set

Build a document index before substantive review. Separate document dates, signing dates, and conditional effectiveness dates. Identify what each amendment replaces, preserves, or waives, and whether a waiver covers only a specified event or period.

Section 2 of the Chord Energy Seventh Amendment replaces agreement text with Exhibit A while preserving existing exhibits and schedules except Annex I, subject to effectiveness conditions. This wording illustrates why a restated text may not be the complete package; it does not establish another facility’s terms.

Record: document IDs, controlling-version conclusions, missing materials, and resolution owners. Keep findings dependent on missing sources provisional.

2. Test pricing and usable liquidity together

Read the benchmark, margin grid, floors, default interest, commitment fees, fee letters, tax gross-up, increased costs, and breakage provisions together. Check benchmark replacement mechanics and when pricing tiers change. Identify who supplies the information driving those changes.

Examine commitments, borrowing conditions, sublimits, outstanding loans and letters of credit, mandatory prepayments, and maturity. A stated facility amount does not establish draw capacity. The Chord amendment, §§ 3.1–3.2, separately specifies a borrowing base and elected commitments; neither figure alone establishes available borrowing capacity.

Ask finance to test a planned draw, delayed refinancing, and adverse operating scenario against the actual terms. Include repeated representations and no-default conditions where applicable. Do not invent missing commercial assumptions.

Record: costs, liquidity constraints, dependencies, finance questions, and proposed contractual responses.

3. Trace financial covenants through their definitions

Capture each covenant’s formula, consolidation perimeter, exclusions, add-back caps, accounting conventions, test dates, certificates, and express cure mechanics. Follow definitions until every material calculation input has an identified source.

As a wording example, § 5.03 of the Applied Materials credit agreement requires a minimum Consolidated Net Interest Coverage Ratio of 3.00:1.00 at each fiscal-quarter end while any lender has Loan Exposure or a Commitment. That threshold is contract-specific; extracting it without its defined components is incomplete.

Have finance validate a sample calculation and stressed headroom. Check whether its model uses contractual definitions rather than similarly named accounting metrics. Distinguish a maintenance test from a ratio condition applying only to specified transactions.

Record: thresholds, definition chains, unresolved assumptions, finance validation, and requested changes. Link calculations without treating them as agreement text.

4. Check restrictions against planned business activity

Review debt, liens, investments, acquisitions, distributions, asset sales, affiliate transactions, and business changes against actual plans. Follow exceptions and baskets, including shared limits, eligibility conditions, and required calculations.

Test a concrete transaction rather than asking whether a covenant is “flexible.” An acquisition may require capacity under investment, debt, and lien provisions plus satisfaction of separate borrowing conditions. Permission under one provision does not resolve the others.

Check affirmative duties, including reporting, notices, insurance, additional guarantors, and further assurances. Identify subsidiary-dependent performance and whether required data can be delivered on time. Review proposed guarantee and collateral scope against the approved obligor structure; refer perfection questions for separate analysis.

Record: planned activities, controlling provisions, missing facts, and consent or drafting requests. Assign feasibility questions to the responsible business team.

5. Map defaults, cure rights, and consequences

Separate payment defaults, covenant breaches, inaccurate representations, cross-default or cross-acceleration provisions, and other specified events. Identify affected entities, thresholds, notice prerequisites, cure periods, and consequences. Distinguish borrowing restrictions from acceleration, and discretionary remedies from automatic consequences where the text does so.

Do not transfer cure periods between clauses. Under the Applied Materials agreement, § 6.01(a), principal nonpayment defaults when due; interest, fees, and other amounts have the later of three Business Days or five days after becoming due. Section 6.01(c) separately gives covered nonpayment-independent failures 30 days to be remedied after written notice from the Agent or any Lender. It is not a universal cure right.

Check whether a pre-event “Default” can block borrowing before an Event of Default permits remedies.

Record: triggers, qualifications, notice conditions, cure mechanics, consequences, and borrower requests. Flag ambiguous cross-references.

6. Review notices, lender controls, and amendment mechanics

Check delivery methods, recipients, receipt rules, Business Day definitions, time zones, and cutoffs wherever timing affects borrowing, prepayment, or cure. Under the Chord agreement, Exhibit A § 12.01, notice effectiveness depends on receipt rules and permitted-method restrictions; sending an email alone does not establish effective notice.

Review voting thresholds, affected-lender consents, assignment restrictions, and amendment execution requirements. Identify who can approve likely future borrower requests and whether transfers could introduce unwanted counterparties.

Where New York law applies, General Obligations Law § 15-301(1) provides that a written agreement prohibiting oral changes cannot be changed by an executory agreement unless that agreement is written and signed by the party against whom enforcement is sought or its agent. A draft redline does not establish an effective amendment; conduct, waiver, or estoppel questions require separate analysis.

Record: delivery dependencies, consent requirements, authority questions, and drafting changes.

7. Convert findings into an approval-ready review

Rank findings by their effect on the financing purpose. Separate drafting corrections from negotiated risk allocations. State the preferred outcome, fallback, commercial rationale, and approval owner for each material issue.

Check responses against dependent definitions and related documents. Narrowing a covenant may not solve a separate draw restriction. Review expense reimbursement and indemnity provisions for material borrower exposure rather than treating them as closing boilerplate.

Compare the final draft with approved positions and, when available, the executed package, including schedules and incorporated documents. Keep unresolved source gaps visible.

Record: recommendations, concession approvals, verification evidence, and remaining owners. An approver should understand the decision without reconstructing the review.

Worked example

Fictional scenario: Cedar Quay Manufacturing LLC is negotiating a $60 million revolver for inventory and equipment purchases. It plans to sell an old production line and acquire replacement machinery, partly funded with new equipment debt. Draft LA-01 includes a leverage covenant and asset-sale prepayment provision. Treasury’s forecast uses EBITDA adjustments without applying the draft’s cap. A referenced fee letter is missing.

All parties, documents, amounts, and terms in this example are fictional. The evidence below paraphrases the assumed draft.

R1 changes the question from whether 3.50:1.00 sounds acceptable to whether the acquisition fits the contractual calculation. It does not establish permission for the equipment debt; debt and lien capacity remain separate checks.

R2 connects prepayment to the replacement plan. Counsel should seek a defined reinvestment period and conditions, while treasury checks cash timing. R3 prevents an unsupported all-in pricing conclusion. Approval remains conditional on recalculation and the missing fee letter, not presumed terms from another facility.

Common mistakes

• Reviewing only the headline margin. Include fee letters, contingent costs, and prepayments in finance’s cash-impact assessment.
• Copying thresholds without definitions. Trace formulas and confirm the model uses contractual inputs.
• Treating baskets independently. Test each transaction against all relevant restrictions and shared limits.
• Assuming every default receives notice and cure. Map each trigger to its own conditions and consequences.
• Treating silence as permission. Distinguish missing documents, language not found, and affirmative contractual permission.

Final quality check

• Each material finding has a verified source version and reproducible locator.
• Economics include fee documents or an explicit unresolved dependency.
• Finance has validated covenant assumptions, or a named owner must do so before approval.
• Planned draws and transactions have been tested across related provisions.
• Default and notice findings preserve triggers, exceptions, and receipt requirements.
• Proposed changes remain consistent with definitions and related documents.
• Open issues have owners; material concessions have recorded approval; final-document differences are resolved or assigned.

Complete the workflow with DecoverAI

DecoverAI is the Legal Intelligence Platform for litigation and transactions. In its contract review workflow in Word, choose the borrower as the represented party and provide deal-specific instructions. Findings quote and locate clauses, rank severity, and identify missing language as not present. Lawyers can edit or insert suggestions as ordinary tracked changes in the signed-in Word user’s name, or dismiss findings with reasons. Tabular review supports work across documents. The checklist remains the team’s work product; reviewers retain legal judgment and validate financial assumptions. Book a demo to discuss reviewing your loan document set.

Frequently asked questions

What should borrower counsel review first?

Confirm the document set, then prioritize usable liquidity, total cost, covenant headroom, and planned transactions. Missing fee terms or unresolved borrowing conditions may outrank visible drafting defects.

Can a term sheet serve as the review baseline?

Yes, for identified commercial points. Check its wording and status rather than assuming every provision is binding. Definitions, exceptions, defaults, and operational duties still need agreement-level review.

Should every unfavorable term be redlined?

No. Target identified borrower needs. Separate corrections, material risk requests, and acceptable concessions, recording fallbacks and approval authority.

Can filed agreements establish market terms?

Not by themselves. They illustrate transaction-specific wording. Use them to identify questions and alternatives, not to declare a threshold, grace period, or fee customary.

Sources

Filed agreements illustrate negotiated wording, not market benchmarks or another borrower’s rights.

• New York General Obligations Law § 5-1401.
• New York General Obligations Law § 15-301.
• Applied Materials credit agreement, September 25, 2025.
• Chord Energy Seventh Amendment, November 3, 2025.

This guide is general information about legal workflows, not legal advice for any matter. It was drafted and reviewed with AI assistance. The worked example is fictional. Contract rights and procedure depend on the governing law, the actual wording, and the facts, so check the cited sources and the rules that apply in your jurisdiction before relying on it.