• Defaults and Remedies. Circumstances or occurrences under which the lender is entitled to foreclose on collateral or otherwise exercise its rights against the borrower are called “events of default.” Payment defaults (e.g., late payments, attempts to sell the business, or any action that could jeopardize the company’s ability to repay or dilute the bank’s position as lender) usually immediately trigger the lender’s right to exercise its remedies against the borrower. Covenant defaults (e.g., inadequate or untimely reporting to the lender) may not trigger the lender’s remedies until they are considered by the lender to have a material adverse effect on the borrower’s business or financial condition. The two main remedies available to a lender are “acceleration” under which all amounts owed by the borrower to the lender are immediately due and payable in full regardless of the credit agreement’s repayment schedule; and “foreclosure” under which the lender takes possession and control of collateral pledged as loan security and sells that collateral applying the proceeds to the outstanding balance of the loan. The lender may seek a deficiency judgment against the borrower if the proceeds of the sale are not sufficient to pay the loan balance and any unpaid interest. At this time the lender may also enforce any guarantees made to support the loan. The Federal Equal Credit Opportunity Act Certain federal loan regulations, for example the Truth in Lending Act (Regulation Z), do not apply to commercial loan transactions. The Equal Credit Opportunity Act (Regulation B), however, DOES apply to commercial loan transactions by all individuals and institutions that regularly participate in decisions to grant credit. Regulation B prohibits discrimination in a credit transaction on the basis of race, color, religion, sex, marital status, national origin, age (provided the applicant has attained the age necessary to enter into a contract), receipt of public assistance, or the fact that the applicant has exercised any right under the Consumer Credit Protection Act.
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