How to review a commercial loan agreement

A commercial loan agreement sets out when the lender must lend, what the borrower must pay, the promises the borrower makes while the loan is outstanding, and what happens on default. Smaller loans may be a promissory note with a security agreement; larger ones a full credit agreement. The same questions apply. This checklist covers business loans (consumer credit raises separate federal and state rules) and how to review the documents in Word with LexDraft.

Last checked: 17 October 2026. The law changes; check the current position before relying on this page.

Clause checklist

• Commitment and availability. Amount, term loan or revolving facility, availability period, and conditions precedent to each draw.
• Interest. Fixed or floating. USD LIBOR has ended, so floating rates now usually reference SOFR (Term SOFR or daily SOFR) plus a margin. Check the benchmark replacement clause, any floor, and how default interest is calculated.
• Fees and prepayment. Commitment, origination and exit fees, and any prepayment premium or make-whole.
• Repayment. Amortization schedule, balloon payment and mandatory prepayments from asset sales or insurance proceeds.
• Representations and warranties. Check which are repeated on each draw and whether they are qualified by knowledge or materiality.
• Covenants. Affirmative (reporting, insurance, compliance), negative (limits on debt, liens, distributions, asset sales and changes of control) and financial covenants (leverage, interest cover, minimum liquidity). Check definitions such as EBITDA carefully, and the cure rights.
• Events of default. Payment default, covenant breach, cross-default to other debt, insolvency, judgments, and material adverse change. Ask for grace periods and materiality thresholds.
• Remedies. Acceleration, enforcement against collateral, and set-off.
• Security. Personal property security interests are governed by UCC Article 9 and are usually perfected by filing a UCC-1 financing statement. Check the collateral description and any real estate mortgage separately.
• Guaranties. Personal or parent guaranties, waivers of suretyship defenses, and whether the guaranty is limited.
• Usury and disclosure. State usury limits vary and many exempt business loans above certain amounts, but not all. Several states, including California and New York, require cost disclosures for some commercial financing offers from non-bank providers.
• Confessions of judgment. Some states prohibit or restrict them. New York, for example, has limited the use of confessions of judgment against defendants who do not reside in the state since 2019.
• Governing law and jury waiver. New York law is common for larger loans; New York General Obligations Law section 5-1401 permits the choice for transactions of USD 250,000 or more.

Borrower priorities

• Covenant headroom you can actually meet.
• Grace periods and notice before any default.
• Permitted debt, liens and distributions that fit the business plan.

A loan agreement review workflow in Word

LexDraft is a Word add-in from Microsoft AppSource. It opens as a side panel in Word 365 (Windows and Mac), Word 2021 and Word on the web, so the agreement never leaves the tool you already draft in.

1. Open the agreement in Word and open LexDraft in the side panel.
2. Pick the governing law. Select the state named in the governing law clause so LexDraft looks for state-specific red flags.
3. Run the review. LexDraft has four built-in playbooks (NDA, SaaS MSA, DPA and services agreement) and no dedicated loan agreement playbook, so this runs as a general review against the governing law you chose. Use the checklist on this page to direct your own read.
4. Triage by severity. Findings are graded Critical, High, Medium or Low, and LexDraft flags standard terms that are missing.
5. Run the quick checks. The defined-term and cross-reference checks are rule-based and run without AI.
6. Accept or reject each redline. Accepted changes land as native Word tracked changes.
7. Verify and sign off. You check every output before it goes to the client or the other side.

What LexDraft does not do

LexDraft does not give legal or financial advice, calculate interest or test covenants. Nothing changes in your document until you accept a redline.

This guide is general information, not legal advice. LexDraft does not give legal advice; qualified counsel must review every draft. Spotted something out of date? Email support@lexdraft.ai and we will fix it.