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Loan & Security AgreementSample review

7.9

/ 10 risk

Senior Secured Loan & Security Agreement

Borrower ↔ Keystone Capital Partners, LP · Governing law: United States

⚖️ Verdict: High risk — renegotiate before signingLeans: Strongly favors the lender (Keystone)

A lender's dream document: a confession of judgment, demand-at-will acceleration, and an unlimited personal guaranty. The borrower is effectively waiving its day in court and exposing its principals' personal assets.

8

Clauses analyzed

5

High risk

3

Need review

0

Accepted

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Where to focus

Your top negotiation priorities

The flagged clauses ranked by how much they matter. Tackle these first — tap any one to jump to the full breakdown and the suggested safer rewrite.

1

Confession of Judgment

Default & RemediesHIGH RISK

This is the most dangerous term in the document. A confessed judgment can be entered and executed before the borrower learns of it. Strike the clause entirely; in states where it is enforceable, the borrower is giving up its day in court.

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2

Discretionary Demand / 'Deems Itself Insecure'

Default & RemediesHIGH RISK

Subjective MAC/insecurity acceleration undercuts the benefit of a fixed term. The UCC requires good faith for 'insecurity' acceleration, but the clause should be tied to objective, defined triggers — not the Lender's unfettered discretion.

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3

Unlimited Joint-and-Several Personal Guaranty

GuarantyHIGH RISK

Joint-and-several, unlimited, defense-waived personal guaranties are extremely lender-favorable. Negotiate caps, several (not joint) liability, a requirement that the lender exhaust collateral first, and a burn-down as principal is repaid.

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Clause risk overview

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Overall risk

HIGH RISKScore: 7.9/108 clauses
High: 5Medium: 3Accepted: 0

Benchmark delta

+2.9

Industry benchmark

5/10

Compound risks

1

Heatmap high

5

Cluster of high-risk clauses

Risk heatmap

High
63%
Medium
38%
Accepted
0%

Confession of Judgment

Default & RemediesScore 10/10Priority 10/10
HIGH RISK
SeverityOverall 10/10
Financial
9.0
Legal
10.0
Ops
6.0
LegalFinancial
  • The Borrower and guarantors authorize any attorney to confess judgment against them without notice or a hearing, for all amounts due plus a 15% attorneys'-fee add-on.
  • Confession-of-judgment (cognovit) clauses are void or heavily restricted in many states and prohibited against consumers federally.
Risk insight: This is the most dangerous term in the document. A confessed judgment can be entered and executed before the borrower learns of it. Strike the clause entirely; in states where it is enforceable, the borrower is giving up its day in court.
Safer rewrite: Delete the confession-of-judgment provision. The Lender's remedies upon an Event of Default shall be those available at law and in equity following notice and an opportunity to cure, with attorneys' fees limited to those reasonably incurred.
Law ref: FTC Credit Practices Rule 16 C.F.R. §444.2; cognovit clauses void in many states (e.g., NY, CA, FL)
Worst case: On an alleged default, judgment is confessed and the borrower's accounts are frozen before it can dispute the amount or the default itself.

Discretionary Demand / 'Deems Itself Insecure'

Default & RemediesScore 9/10Priority 10/10
HIGH RISK
SeverityOverall 9/10
Financial
9.0
Legal
9.0
Ops
7.0
FinancialLegal

The Lender may accelerate the entire loan and stop advances any time it decides, in its 'sole and absolute discretion,' that a material adverse change has occurred or that it 'deems itself insecure.' This converts a term loan into a demand loan.

Risk insight: Subjective MAC/insecurity acceleration undercuts the benefit of a fixed term. The UCC requires good faith for 'insecurity' acceleration, but the clause should be tied to objective, defined triggers — not the Lender's unfettered discretion.
Safer rewrite: Acceleration for a material adverse change shall require a material adverse effect as defined by objective criteria (e.g., a stated decline in EBITDA or breach of a financial covenant) and shall be exercised in good faith. Delete the 'deems itself insecure' language or subject it to the UCC §1-309 good-faith standard.
Law ref: UCC §1-309 (insecurity / acceleration must be in good faith)
Worst case: A solvent, performing borrower is forced to repay the full balance on short notice based on the lender's subjective view of its 'prospects.'

Unlimited Joint-and-Several Personal Guaranty

GuarantyScore 9/10Priority 10/10
HIGH RISK
SeverityOverall 9/10
Financial
10.0
Legal
9.0
Ops
5.0
FinancialLegal
  • Each principal personally guarantees the full debt, jointly and severally and without limit, as a guaranty of payment (not collection), waiving all defenses and requiring no recourse to the borrower or collateral first.
  • Any one guarantor can be pursued for 100% of the obligation.
Risk insight: Joint-and-several, unlimited, defense-waived personal guaranties are extremely lender-favorable. Negotiate caps, several (not joint) liability, a requirement that the lender exhaust collateral first, and a burn-down as principal is repaid.
Safer rewrite: Limit each guarantor's liability to a stated percentage/amount (several, not joint), require the Lender to first realize on the collateral, preserve customary suretyship defenses, and reduce the guaranty as the principal balance is repaid.
Law ref: Restatement (Third) of Suretyship & Guaranty §§48–49
Worst case: After default, the lender pursues the single guarantor with the most personal assets for the entire balance, bypassing the collateral and the other principals.

Cross-Default to Any Obligation

Default & RemediesScore 8/10Priority 10/10
HIGH RISK
SeverityOverall 8/10
Financial
8.0
Legal
8.0
Ops
6.0
FinancialLegal
  • Any default by the Borrower or any guarantor under any other obligation to anyone — regardless of amount, relationship, or whether waived by that creditor — is an Event of Default here.
  • This sweeps in trivial, unrelated matters.
Risk insight: An unthresholded cross-default is dangerous. Add a materiality threshold and a cross-acceleration construct so only a significant, accelerated debt triggers default.
Safer rewrite: Cross-default shall apply only to other indebtedness exceeding USD $[threshold] that has been accelerated (cross-acceleration), and shall exclude obligations being contested in good faith and any default that the relevant creditor has waived.
Worst case: A disputed invoice or a small equipment lease default trips this loan into default and acceleration.

Make-Whole Prepayment Premium + 3% Fee

PaymentScore 8/10Priority 9/10
HIGH RISK
SeverityOverall 8/10
Financial
9.0
Legal
6.0
Ops
5.0
Financial
  • Prepayment requires a make-whole equal to the present value of ALL interest through maturity, plus a 3% fee, and partial prepayments don't reduce installments.
  • This effectively prevents early payoff or refinancing.
Risk insight: A full-term make-whole is very lender-favorable. Negotiate a declining prepayment schedule (e.g., 3%/2%/1%/0%), permit penalty-free prepayment after a lockout period, and allow partial prepayments to reduce the balance.
Safer rewrite: Replace the make-whole with a declining prepayment premium (3% in year 1, 2% in year 2, 1% in year 3, 0% thereafter), permit prepayment in whole or in part without premium after [24] months, and apply partial prepayments to reduce outstanding principal and future installments.
Law ref: Make-whole enforceability: In re Energy Future Holdings (3d Cir.)
Worst case: Rates fall, but the borrower cannot refinance because the make-whole captures every dollar of future interest.

No-Cure Monthly Financial Covenants

CovenantsScore 7/10Priority 9/10
NEEDS REVIEW
SeverityOverall 7/10
Financial
7.0
Legal
7.0
Ops
7.0
FinancialOperational

FCCR of 1.25x and leverage of 3.0x are tested monthly, with monthly statements due in 15 days, and any single breach is an immediate Event of Default with no cure period — a very tight, unforgiving covenant package.

Risk insight: Monthly testing with no cure and aggressive ratios invites technical defaults. Move to quarterly testing, add an equity-cure right, build in covenant headroom, and extend the reporting window.
Safer rewrite: Test financial covenants quarterly, set ratios with reasonable headroom to the base case, provide an equity-cure right (at least twice over the term), and extend monthly reporting to 30 days and quarterly to 45 days.
Worst case: A one-month dip in coverage — even seasonal — creates an immediate, uncurable default the lender can leverage.

Cross-Collateralized Blanket Lien (Dragnet)

Security InterestScore 6/10Priority 8/10
NEEDS REVIEW
SeverityOverall 6/10
Financial
6.0
Legal
7.0
Ops
6.0
LegalFinancial
  • The lien covers all present and after-acquired assets and, via the dragnet clause, secures all other present and future debts to the Lender.
  • This fully encumbers the company and can impede additional financing.
Risk insight: Blanket liens are normal for senior debt, but the dragnet (cross-collateralization of unrelated future debts) and lack of carve-outs are negotiable. Limit the lien to this facility and preserve room for permitted liens/baskets.
Safer rewrite: Limit the security interest to the obligations under this Agreement (remove the dragnet), exclude specified assets (e.g., certain IP or leased equipment), and permit customary liens and a basket for future equipment financing and permitted indebtedness.
Law ref: UCC §9-204 (after-acquired property; future advances)

Default Interest + 10% Late Charge

PaymentScore 6/10Priority 8/10
NEEDS REVIEW
SeverityOverall 6/10
Financial
7.0
Legal
6.0
Ops
4.0
FinancialLegal
  • On default, interest jumps by 5% AND a 10% late charge applies to late payments, both compounding monthly.
  • Stacking a high late charge on top of default interest can be challenged as an unenforceable penalty or usurious in some states.
Risk insight: Default pricing is customary, but stacking a 10% late charge on top of a 5% default-rate bump (compounding) is aggressive. Pick one mechanism, cap it, and add a grace period.
Safer rewrite: Apply either a default rate increase (capped at, e.g., 2–3%) OR a one-time late charge (capped at 5% of the overdue installment), not both, with a 10-day grace period, and ensure the combined effective rate complies with applicable usury limits.
Law ref: Liquidated-damages/penalty doctrine; state usury statutes

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