Acceleration Clause

Acceleration clauses help to define the terms of the loan covenant. There are a number of terms that can be included in an acceleration clause. For example, the loan covenants may prohibit the buyer from reselling the property without the express permission of the lender. This ensures that the lender is able to secure payment of the outstanding balance in the event that the borrower wishes to end the business relationship. Another example of terms that are commonly found in an acceleration clasue is the disposition of the collateral used to secure the loan. Prohibiting the sale of collateral for the duration of the loan also helps to make sure there is some sort of assets to collect in the event that the borrower defaults in some manner.

The acceleration clause can also be used to spell out some of the common terms of compliance of the loan, while outlining the consequences that will ensue if the terms are not honored. As an example, the acceleration clause may specify the due date of the payments, and also include a list of steps the lender will take in order to penalize the borrower for late payments or failure to pay at all. This may include the application of a fixed amount if the payment is not paid within a specified time after the due date, all the way through termination of the loan and demand for full payment.

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