A credit agreement runs for years and touches almost every decision a company makes: how it spends cash, whether it can acquire, what it can pay its owners, and what it must report. Most borrowers negotiate the rate and the amount carefully and the other hundred pages much less carefully. We represent borrowers, from venture-backed startups taking their first venture debt to established businesses refinancing a bank facility. We concentrate on the provisions that decide how much room you will have when plans change, and on the IP and technology terms that standard lender forms tend to get wrong for software companies.
Term Loans, Revolvers, And Venture Debt
Commercial loans come in a few basic forms. A term loan is drawn once, or in delayed draws, and repaid on a fixed schedule or at maturity. A revolving credit facility lets you borrow, repay, and borrow again up to a commitment, and is the usual source of working capital, often with letter of credit and swingline subfacilities. Venture debt is a term loan to a venture-backed company that may not yet have positive cash flow. The lender relies heavily on the company's ability to raise its next equity round and is compensated through interest, fees, and warrants. Each form raises its own issues, and many companies carry more than one at once.
Inside A Credit Agreement
Credit agreements are contracts, usually governed by New York law in larger deals and by the lender's home state law in smaller ones, with UCC Article 9 governing the collateral. Their structure is fairly standard. Conditions precedent govern each borrowing. Representations and warranties, often repeated at every draw, cover organization, financial statements, litigation, IP ownership, and compliance with law. Affirmative covenants require reporting and insurance. Negative covenants restrict debt, liens, investments, dividends, asset sales, and fundamental changes, subject to negotiated baskets. Financial covenants test debt to EBITDA, fixed charge coverage, minimum liquidity, or recurring revenue. Events of default define when the lender can stop lending, accelerate, and enforce.
What We Negotiate For Borrowers
We focus where borrowers lose flexibility. That means EBITDA definitions with appropriate add-backs, covenant levels with real headroom against your projections, equity cure rights, baskets sized for the acquisitions and investments in your plan, materiality and knowledge qualifiers on representations, and cure periods before covenant breaches become defaults. In venture debt, we negotiate the material adverse change and investor abandonment defaults, warrant coverage and strike price, minimum cash requirements, prepayment fees, and whether the lender takes a lien on IP or only a negative pledge. We also handle the amendment, waiver, and consent requests that come up over the life of the loan.
Defaults And Lender Disputes
A default notice is the start of a negotiation. Many defaults are technical: a late compliance certificate, a missed notice, or an unpermitted lien. The lender's response may be a reservation of rights letter, a demand for fees, or a declaration of default and acceleration. We review whether a default actually occurred and what the lender can and cannot do in response. When a lender overreaches, we work with our litigation practice on claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and wrongful acceleration, and on defenses to collection. A subjectively drafted material adverse change default is a common flashpoint in venture debt.
Common Borrower Mistakes
The most frequent mistake is treating the credit agreement as boilerplate and negotiating only the term sheet. Another is failing to build a compliance calendar for reporting deadlines and covenant tests, which turns routine paperwork into defaults. Companies also sign amendments that include broad releases of claims against the lender without asking whether they are giving up anything of value. In venture debt, founders sometimes miss that the lender's consent is needed for an exclusive license, for moving cash to a foreign subsidiary, or for changes in control that a new equity round could trigger. Read the negative covenants against your two-year plan before you sign.
