Pro forma credit agreement example: What is it and what does it include?
A pro forma credit agreement is a type of loan agreement that outlines the terms and conditions of a potential loan. It is typically used as a tool to estimate the expected cost and impact of a loan prior to finalizing the loan agreement. Pro forma credit agreements are often used by businesses and investors when considering a potential loan, as they allow them to review the terms of the loan and determine whether it is a viable option for their needs.
When it comes to pro forma credit agreements, there are several key components that are typically included. These can vary depending on the lender and the specific terms of the loan, but some of the most common components include:
1. Loan amount: This is the amount of money that the borrower is requesting. It is typically outlined in the first section of the agreement.
2. Interest rate: The interest rate is the percentage of the loan that the borrower will be required to pay back in addition to the principal amount. This is usually expressed as an annual percentage rate (APR).
3. Repayment schedule: The repayment schedule outlines the specific terms of how the loan will be repaid. This can include the frequency of payments (e.g. monthly, quarterly), the total number of payments required, and any other specific conditions.
4. Security and collateral: This section outlines any assets that the borrower is providing as collateral for the loan. This can include property, vehicles, or other valuable assets.
5. Late payment fees: In the event that the borrower is unable to make a payment on time, this section outlines any fees or penalties that may be assessed.
6. Prepayment penalties: Some loans may include penalties for early repayment. This section outlines any such penalties that may be applicable.
7. Default and remedies: This section outlines what will happen if the borrower defaults on the loan. It typically includes information on the lender`s rights to collect on the loan and any remedies that may be available to the lender.
Overall, a pro forma credit agreement example is a useful tool for businesses and investors who are considering taking out a loan. By providing a clear and detailed outline of the terms of the loan, it allows them to make informed decisions about whether a particular loan is the right choice for their needs.