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Provisions of Standard Commercial Guarantee Agreements: Technical Guide

Introducing provisions of standard commercial guarantee agreements to MFIs
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This guide introduces MFIs to the principal provisions of a standard commercial guarantee agreement and offers tips for drafting and negotiating standard clauses.

Loan guarantees can help MFIs gain access to commercial funding, ease future borrowings, and act as a structuring tool, enabling MFIs to obtain loans under favorable conditions. The guide addresses commercial guarantee agreements governed by common legal systems, with emphasis on New York law, the U.S. Bankruptcy Code and the Restatement (Third) of Suretyship and Guaranty. The annotations and descriptions in this guide explore the following eight sections of a loan guarantee:

  • Definition and key concepts;
  • Representations and warranties;
  • Subrogation of rights;
  • Binding effect and obligations;
  • Notices and severability;
  • Governing law and submission to jurisdiction;
  • Conditions for amendment;
  • Conditions for transfer.

The guide discusses advantages and disadvantages of using a loan guarantee. It guides MFIs on negotiating and drafting a reimbursement agreement, and also includes a sample reimbursement agreement.