---

name: draft-loan-agreement
description: Use when drafting a loan agreement or facility agreement between a lender and borrower for a commercial or corporate financing. Covers facility type, interest mechanics (including Sharia-compliant structures for KSA), covenants, events of default, security cross-references, and key lender/borrower negotiation points. Handles LMA-style common-law agreements (DIFC/ADGM) and civil-law structures (LB, UAE onshore). Triggers on "loan agreement", "facility agreement", "credit agreement", "term loan", "revolving credit", or Islamic finance equivalents (murabaha, ijara, tawarruq).
license: MIT
metadata:
id: draft.loan-agreement
category: draft
practice_area: banking
jurisdictions: [UAE, DIFC, ADGM, KSA, LB, EG, GCC]
priority: P0
intent: [loan agreement, facility agreement, credit agreement, term loan, revolving credit, murabaha, ijara]
related: [draft-guarantee, draft-security-agreement, draft-promissory-note, review-financial-covenants]
source: Louis — HAQQ Legal AI (github.com/sboghossian/mini-claude-for-legal)
version: "1.0"

Loan Agreement / Facility Agreement

When to use this

Use this skill when a lender (bank, private credit, bilateral, or syndicated) is extending credit to a borrower (corporate or individual). This skill covers the full loan agreement from facility type through representations, covenants, events of default, and governing law.

Distinct uses:

• Bilateral term loan: one lender, one borrower, single drawdown
• Revolving credit facility: multiple drawdowns up to a cap; repayable and re-drawable
• Syndicated facility: multiple lenders acting through an agent (LMA-style); much more complex — this skill gives the core; engage banking counsel for syndicated structures
• Islamic financing: KSA and other GCC clients frequently prefer Sharia-compliant structures — see Jurisdictional notes below

For a simple short-term promissory obligation, use [[draft-promissory-note]] instead.

Required inputs

Input	Why it matters	Default
Lender + Borrower (+ Guarantor(s))	Parties; guarantor(s) require separate guarantee instrument	— must supply
Principal amount + currency	Defines the facility size	— must supply
Interest rate + payment schedule	Core economic terms; specify EIBOR/SAIBOR/SOFR + margin or fixed rate	EIBOR + margin (UAE); SAIBOR + margin (KSA)
Tenor (term)	Duration of the loan	3-5 years for term loans
Repayment structure	Bullet / amortizing / balloon	— must specify
Security	None / pledge of assets / mortgage / guarantee	None unless specified
Governing law	Law of the agreement	DIFC or UAE law for UAE deals

Document structure

1. Definitions

Core definitions: Drawdown Date, Availability Period, Interest Period, Interest Payment Date, Repayment Date, Margin, Reference Rate, Mandatory Costs, Market Disruption Event, Event of Default, MAC (Material Adverse Change/Effect), Finance Document, Security Document.

2. The Facility

• Type: term loan / revolving credit facility / multi-currency facility
• Amount: the committed amount; if revolving, the maximum outstanding at any time
• Purpose: state the specific permitted use of proceeds (working capital, acquisition, refinancing, construction) — enables the lender to monitor and, in some cases, restrict misuse
• Availability period: window during which the Borrower may draw down

3. Conditions Precedent

What must be delivered and satisfied before the first drawdown:

• Corporate authorization documents (board resolutions, constitutional documents, good-standing certificates)
• Finance documents duly signed
• Security documents perfected
• Legal opinions from counsel to each party
• No-event-of-default certificate from Borrower
• For acquisition facilities: evidence of acquisition completion or conditionality
• KYC/AML documentation (see [[draft-kyc-procedure]])

4. Drawdown mechanics

• Drawdown notice: form, timing (typically 3-5 business days before drawdown date), irrevocability
• Conditions to each drawdown (for revolving): representations and warranties true; no event of default
• Minimum drawdown amount
• Banking days and cut-off times for same-day value

5. Interest

• Reference rate: EIBOR (UAE), SAIBOR (KSA), SOFR (USD), EURIBOR (EUR), SONIA (GBP) + Margin; reset at start of each Interest Period (1, 3, or 6 months typically)
• Market disruption provision: if the Reference Rate is unavailable (IBOR transition), the lender may quote a replacement rate; include ISDA fallback language or specific contractual fallback
• Default interest: on overdue amounts, reference rate + margin + penalty spread (typically 2-3%)
• Interest payment dates: monthly, quarterly, or semi-annual in arrears

6. Repayment

• Schedule: attach a full amortization schedule as an exhibit; or for revolving, state final maturity date
• Bullet repayment: entire principal at maturity — simple but creates refinancing risk
• Amortizing: principal repaid in equal (or unequal) scheduled installments
• Balloon: partial amortization during term, large final payment at maturity
• Voluntary prepayment: right to prepay; notice period (typically 5-10 business days); prepayment premium (breakage costs for fixed-rate; sometimes a penalty for early repayment in first X years)
• Mandatory prepayment events: receipt of insurance proceeds (above threshold), asset disposal proceeds (above threshold), equity issuance (excess cash sweep), change of control

7. Fees

• Arrangement fee: one-time upfront; typically 0.5-2% of facility amount
• Commitment fee: on undrawn commitment for revolving facilities; accrues daily; typically 25-50% of Margin
• Agency fee: annual; payable to the facility agent in syndicated deals
• Prepayment fee / breakage costs: covers the lender's cost of unwinding hedges

8. Representations and warranties

Borrower represents and warrants (on signing and on each drawdown):

• Corporate status: duly incorporated, validly existing, authorized to borrow
• Power and authority: board resolutions obtained, no constitutional limitation
• No conflict: execution does not violate constitutional documents, material agreements, or applicable law
• Solvency: not insolvent; no pending insolvency proceedings
• Financial statements: most recent audited financials fairly presented; no material adverse change since date of financials
• No material litigation: no proceedings pending that would have a material adverse effect
• Tax compliance: all taxes filed and paid; no disputed tax claims of material amount
• Environmental: no material environmental liabilities (if relevant)
• Anti-corruption: no violation of applicable anti-bribery laws (FCPA, UK Bribery Act, local equivalents)
• Sanctions: not a Sanctioned Person; proceeds not used for sanctioned activities

9. Covenants

Affirmative covenants (Borrower must do):

• Deliver annual audited financial statements within 90/120 days of fiscal year end
• Deliver quarterly management accounts within 45/60 days of quarter end
• Notify Lender of any Event of Default (or potential Event of Default) promptly
• Maintain insurance
• Comply with all applicable laws and authorizations
• Maintain and operate the business in its ordinary course

Negative covenants (Borrower must not without Lender's consent):

• Incur additional financial indebtedness above a defined threshold
• Create any additional security (negative pledge)
• Dispose of material assets above a defined threshold
• Make acquisitions above a defined threshold
• Pay dividends while in default, or subject to a leverage test
• Change the nature of its business materially
• Make changes to constitutional documents affecting Lender's rights

Financial covenants (tested quarterly or semi-annually):

• Debt Service Coverage Ratio (DSCR): operating cash flow / debt service ≥ [1.20:1] or similar
• Leverage ratio: net debt / EBITDA ≤ [3.5:1] or similar
• Interest coverage ratio: EBITDA / interest expense ≥ [3.0:1] or similar
• Define each component carefully (EBITDA: add-backs; net debt: include/exclude shareholder loans)
• Equity cure: right for Borrower's shareholders to inject equity to cure a financial covenant breach (typically limited to 2 cures in the loan term)

10. Events of Default

Standard events triggering lender's acceleration rights:

1. Non-payment: failure to pay any sum when due (sometimes with a 3-5 day grace period)
2. Financial covenant breach: failing a financial covenant test
3. Other covenant breach: breach of any other obligation; 30-day cure period
4. Misrepresentation: any representation or warranty was false when made
5. Cross-default: default under any other financial indebtedness above a defined threshold
6. Insolvency events: filing, voluntary or involuntary; appointment of receiver or administrator; composition with creditors
7. Enforcement of security: any creditor enforces security against Borrower's assets
8. Material adverse change (MAC): a change that materially adversely affects Borrower's ability to perform
9. Change of control: if control of Borrower changes without Lender's consent
10. Unlawfulness: it becomes unlawful for any Finance Party to perform its obligations

Acceleration: on Event of Default, Lender may declare the facility immediately due and payable, and enforce any security. Specify whether acceleration is automatic (on insolvency) or at Lender's election.

11. Security

Cross-reference to security documents (pledges, mortgages, guarantees) separately drafted. State:

• What security is given by which party over which assets
• When security is required to be perfected
• Cross-acceleration between loan and security documents

12. Governing law and dispute resolution

• DIFC/ADGM: full LMA-style documentation; English law; DIFC Courts or LCIA arbitration at DIFC
• UAE federal: UAE Commercial Transactions Law; onshore court proceedings or DIAC arbitration
• KSA: Sharia-compliant structure required for Islamic banks; Saudi law; SCCA or Saudi Commercial Court
• LB: Lebanese law; Beirut Court of Commerce; or ICC arbitration (common for international bank loans to Lebanese borrowers)

Jurisdictional notes — Islamic finance (KSA, GCC)

Where Sharia compliance is required, the interest-bearing structure must be replaced:

Structure	Description	Best for
Murabaha	Bank purchases the asset and resells to client at cost-plus (disclosed margin); profit is the bank's return	Asset finance, trade finance
Ijara	Bank purchases asset and leases it to client; client makes lease payments; option to purchase at end of lease	Equipment, real estate, project finance
Tawarruq (commodity murabaha)	Synthetic structure using commodity sale chain to generate cash; widely used for unsecured financing	Working capital, personal finance
Mudaraba	Capital-provider and entrepreneur share profits per agreed ratio; losses borne by capital-provider	Investment partnerships
Musharaka	Joint ownership / equity participation; profits and losses shared	Project equity, real estate

Islamic finance documents do not include an "interest rate" — they reference a "profit rate" or "rental rate." Avoid characterizing returns as interest in KSA-governed instruments.

Note: UAE federal interest law — Commercial Transactions Law (Federal Law 18/1993 as amended) regulates commercial interest; usury provisions limit excessive rates. EIBOR-linked commercial rates have generally been accepted. Verify with local counsel for current position.

Key lender / borrower negotiation axes

Point	Lender prefers	Borrower prefers
Financial covenant tightness	Tight ratios, frequent testing	Loose ratios, semi-annual testing, equity cure
Negative covenant thresholds	Low thresholds (more control)	High thresholds (operational flexibility)
MAC definition	Broad, subjective	Narrow, objective, specific events only
Cross-default trigger	Any default on any indebtedness	Only acceleration by another creditor, above threshold
Acceleration	Automatic on all events	At lender's election on all events except insolvency
Prepayment premium	Hard no-call for 2-3 years	None; free to prepay anytime
Margin ratchet	Fixed margin	Margin decreases as leverage improves

Common mistakes

• Incomplete or ambiguous EBITDA definition (add-backs create inflated covenant headroom)
• Vague MAC clause — borrowers use "objective test" arguments to dispute MAC determinations; lenders want subjective
• Missing cross-default threshold — a USD 50k default in a subsidiary triggering a USD 100m facility is commercially unreasonable
• Omitting the equity-cure mechanism when the borrower has private equity backers
• Not specifying which law governs each Security Document separately (security perfection is jurisdiction-specific)

Related skills

• [[draft-guarantee]]
• [[draft-security-agreement]]
• [[draft-promissory-note]]
• [[review-financial-covenants]]
• [[draft-kyc-procedure]]