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The 2 Essential Keys to Understanding Your Credit Agreement

  • By Dennis Hoyt
  • Published: 2/22/2016

handswriting1So you just negotiated and completed a good financing deal for your company. Now you need to adhere to the terms of that deal—all of them.

You have a 100-plus page loan document in front of you, probably written by your lender’s attorneys, based upon what they understood as the agreed upon intent of the deal. Attorneys are not generally known for their brevity in writing, so there may be important parts of the agreement that are hard to understand. That’s because your agreement is a legal document; its purposes are to consider every possible contingency and protect the parties, not to be brief. So what do you do to ensure you and others are always aware of the requirements and restrictions of that lengthy legal document? 

Very simply, someone needs to summarize that agreement, to reduce that lengthy document to a ~ 15-page summary—in plain English—to allow you and others to more easily understand the requirements of your new agreement.  That summary should have two goals:

  • Summarize in as few words as possible all of the future requirements the company must follow, based on potentially likely events, and
  • For each area summarized, to also note specifically where in the agreement one would go to find out more information when needed.


Your summary should be prepared by someone who has some understanding of these types of agreements, has an analytical mind, and most importantly, likes to get into the detail.

You can ask your lender to do it. If they agree to do it, they may charge you, but they will ask the attorney that just drafted the agreement for them to summarize the deal. What you’ll get is a slightly shortened version of your original document. I’ve seen a few; that wouldn’t be my first choice.

Only those involved in the deal can summarize it, right? No, an outsider can also do it. It would be more efficient for an involved person to prepare the summary, but a potential problem with that is they may be inclined to summarize their understanding of the intent of the deal—which may not be exactly how it was written. On the other hand, an outsider will summarize the deal as it was written, just as a judge would interpret it. Myself, I’ve done it both ways. Both work, though as an outsider you do spend a little more time clarifying parts of the agreement with someone that was directly involved. 


Remember goal # 1: You are not going to summarize the full agreement itself; you are going to summarize only the going forward requirements of the agreement. So the best way to start is to create a list of needed topics that you want to summarize. Some of the topics will follow sections in the agreement very closely, others will force you to review several sections to understand the actual requirement. And by “going forward” I mean you do not need to include any upfront requirements of the lender, such as a “condition precedent”, (e.g., you had to provide them your most recent F/S before closing). On the other hand, I would include that condition precedent in the summary if certain documents or actions must be provided/performed at a later time, say 45 days after close. In addition, you can also include notes to yourself as to how best to follow a specific requirement.

Remember goal # 2: Your summary will not include everything, so make sure you include the specific section numbers and definitions from the agreement that you used to prepare the summary. This will allow you to quickly go to sections of that agreement for a more thorough understanding of the requirements when as needed.

Finalizing the summary

When your summary draft is complete, make sure you have someone else review it—preferably your attorney. After incorporating their comments, you should have a well-constructed and accurate summary of the deal’s requirements.  No more guessing at what needs to be done.

Note—while summarizing your agreement, you may happen upon a clause that you did not negotiate or want, or is quite onerous. That’s not good, but the sooner you know this the better. So for any areas you’ve found needing to be amended, if critical, amend the deal ASAP. If not, make sure you note them for a later time when you want to amend the agreement. And when you do amend the agreement, make sure you update your summary, tracking your changes so you have an audit trail of what was changed.

Dennis Hoyt is president of Hoyt Treasury Services, LLC, providing treasury consulting to middle-market companies. He can be reached at, or 616-656-7770.

A longer version of this article will appear in an upcoming edition of AFP Exchange.

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