How to Review a Loan Agreement (2026 Checklist)

How to review a loan agreement A loan agreement sets the terms on which money is lent and repaid. Most are drafted by the lender and lean in the lender's favour, so reviewing one means understanding the real cost, the obligations you take on, and the triggers that could let the lender demand the money back early. This checklist goes clause by clause, mostly from a borrower's view. It is general information, not legal advice; have a lawyer review the actual document, especially for anything large or secured. Start with the commercial summary. Many agreements have a schedule or term sheet listing the amount, rate, term, and fees. Read it first so you can test the clauses against what you were promised. ## The review checklist ### 1. The loan itself - The principal amount, and whether it is drawn in one go or in tranches.

• Conditions precedent: what you must deliver before the lender releases funds.
• The purpose clause: many loans restrict what the money may be used for. ### 2. Interest and the real cost - The interest rate: fixed, or floating over a reference rate, and how it is calculated.
• Default interest: the higher rate that applies if you miss a payment.
• Fees: arrangement, commitment, facility, and prepayment fees.
• Work out the all-in cost, not just the headline rate. ### 3. Repayment and prepayment - The repayment schedule: amortising, interest-only with a bullet at the end, or on demand.
• Can you repay early, and is there a prepayment penalty or break cost?
• Is any part repayable on demand, which gives the lender a powerful lever? ### 4. Security and guarantees - What secures the loan: a charge over assets, a mortgage, a pledge, or a lien?
• Are personal guarantees required, and are they capped or unlimited?
• Cross-default and cross-collateral links to other facilities. Security converts a missed payment into a risk to real assets, so understand exactly what is pledged. ### 5. Representations and warranties - Statements you make about your business and finances, often repeated at each drawdown. A false representation can be an event of default. ### 6. Covenants - Financial covenants: ratios you must keep (for example leverage or interest cover), tested how often.
• Information covenants: accounts and certificates you must deliver and when.
• Negative covenants: things you cannot do without consent (take on more debt, grant security, sell assets, pay dividends, change the business). Covenants are where borrowers get caught. A tight covenant breached by a bad quarter can trigger default even if payments are current. ### 7. Events of default - The full list: non-payment, covenant breach, insolvency, cross-default, material adverse change, and change of control.
• Are there cure periods and grace periods, or does default bite immediately?
• What can the lender do on default: accelerate, enforce security, charge default interest? The "material adverse change" clause is worth special attention because it is broad and subjective. ### 8. Costs, set-off, and assignment - Who pays the lender's legal and enforcement costs (usually the borrower)?
• Can the lender set off your other accounts?
• Can the lender transfer or sell the loan to someone else, and does that affect you? ### 9. Governing law and disputes - The governing law and forum, and whether the lender can sue in multiple places. ## Red flags to stop on - "On demand" language on a loan you expected to be term.
• A broad material-adverse-change event of default with no objective test.
• Unlimited or uncapped personal guarantees.
• Default interest and fees that stack into a punishing real cost.
• Financial covenants with little headroom or frequent testing.
• Prepayment penalties that lock you in even when you can refinance cheaper. ## Jurisdiction points to check - Security perfection. How a charge or mortgage must be registered to be valid against others differs by country. In the US, a security interest is perfected under UCC Article 9; in India, company charges are registered with the Registrar of Companies; in the UK, charges are registered at Companies House. Unperfected security can be worthless.
• Interest and usury rules. Some jurisdictions cap interest or regulate default interest.
• Stamp duty and formalities. Loan and security documents may attract stamp duty and need specific execution formalities. Mark anything uncertain as "to verify with local counsel". ## Reviewing a loan agreement in one place Reading each clause, testing it against the term sheet, marking the risky covenants and default triggers, and tracking what the lender agreed to change are all manual steps. They can live in one AI contract workspace. A tool like Adira opens a document and flags positions clause by clause as favourable, neutral, or unfavourable to you, surfaces risky terms such as an on-demand clause or a broad material-adverse-change default, lets you ask for changes in plain English, and keeps a timeline of every version and key date. The point is simply that reading, marking, and tracking a loan agreement do not have to be three separate jobs. This article is general information, not legal advice.