Before making a loan, a lender will want to ensure that the prospective
borrower is in a financial position to service the loan, i.e. repay it on
time and according to the repayment schedule. This may be particularly
relevant where a loan is unsecured as the lender will have no recourse to
security in the event of a default under the loan.
Lenders will often seek the comfort they require as part of their due
diligence in the first instance by considering a borrower’s annual (and
management) accounts as well as any other relevant financial information. A
loan agreement will also usually include contractual representations and
warranties that the borrower will make as to its financial health, however
in addition, a lender may seek stand-alone confirmation from the borrower
as to its solvency, particularly before a loan agreement is formally
entered into. This letter of solvency has been drafted to be such an
In this template notice the borrower confirms its solvency to the lender
and states that as a result of entering into the loan its solvency will not
be negatively impacted. The template has been drafted so as to be given
before the loan agreement is entered into, however the parties may also
wish it to be repeated before each advance under the loan is made.
Using a notice of solvency does not replace either seeking security for a
loan or obtaining a legally binding guarantee, but it can be a useful
alternative for lenders who seek some level of comfort as to the financial
health of a borrower before any monies have been advanced.
long form loan agreement
includes conditions precedent and if a solvency notice is being used,
clause 5.1.5 should be adjusted to include reference to it.
Optional phrases / clauses are enclosed in square brackets. These should be
read carefully and selected so as to be compatible with one another. Unused
options should be removed from the document.
This Letter of Solvency is in open format.
Once you have purchased access to the appropriate document folder click on
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