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Conditions precedent CPs
Also called CPs, closing conditions, conditions to funding.
The things that must be delivered or true before a lender is obliged to release money — the reason an approval and a funded deal are separated by weeks and, sometimes, by nothing at all.
Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.
What it means
An approval is a decision to lend subject to conditions. The conditions are the deal. Until every one of them is satisfied or waived in writing, the lender has no obligation, and in most commitment letters it says so explicitly.
What is usually on the list
- Executed loan or purchase documents, guarantees and security agreements
- A UCC search showing the lender in the lien position it requires, and a subordination or intercreditor agreement from any existing secured party
- A landlord waiver or collateral access agreement where inventory or equipment sits on leased premises
- Certificate of good standing, organisational documents, and a corporate resolution with an incumbency certificate
- Evidence of insurance with the lender named as loss payee or additional insured
- Payoff letters for any position being retired, and evidence the borrower's equity injection is deposited
- Updated bank statements, a fresh credit pull, appraisal, environmental report, field exam, or tax transcripts, depending on the product
- No material adverse change since the date of the commitment
Objective versus subjective
Some conditions are mechanical: deliver document X. Others are drafted as "in form and substance satisfactory to Lender in its sole discretion", or turn on the absence of a material adverse change that the lender assesses. The second kind is not a condition so much as an option to walk, and a commitment letter made largely of them is worth much less than it appears.
Where you meet it
As a list in the commitment letter, as a closing checklist circulated by counsel, and as the reason the wire has not arrived.
Where this one catches people
Businesses treat an approval as money and act on it: signing a purchase agreement, giving notice on a lease, ordering equipment, declining another offer, telling a supplier the payment is coming. Then a condition fails.
The ones that fail are almost never the ones you control. A landlord who will not sign a collateral access agreement. An incumbent funder who will not subordinate, because a blocked competitor is a competitor blocked. A tax transcript that does not match the return you submitted. An insurer who will not add the lender as loss payee on the policy you have.
Before you rely on an approval, get the full condition list in writing, mark every item that depends on a third party, and start chasing those on day one. Ask the lender directly which conditions its own credit committee treats as discretionary. The answer, and the reluctance to give it, both tell you something.
Worked through
Suppose you are approved for a 400,000 asset-based line and you give 30 days' notice on your current facility on the strength of it.
The condition list includes a collateral access agreement from the landlord of the warehouse holding your inventory. Your landlord has never heard of such a thing, sends it to a lawyer, and comes back three weeks later asking for a fee and a waiver of the lender's right to remain in occupation.
The lender will not fund inventory without the agreement. Your existing facility ends in nine days. Nothing about your credit changed, no one did anything wrong, and the deal is now a crisis — because the one condition that took time belonged to somebody with no stake in your closing.
Figures in the example are illustrative. They show the arithmetic, not a quote — what any one lender would charge is on that lender's page, where it is published at all.
Where you will meet this term
Read next
Conditions precedent — common questions
What does conditions precedent mean?
The things that must be delivered or true before a lender is obliged to release money — the reason an approval and a funded deal are separated by weeks and, sometimes, by nothing at all.
Where does conditions precedent catch people out?
Businesses treat an approval as money and act on it: signing a purchase agreement, giving notice on a lease, ordering equipment, declining another offer, telling a supplier the payment is coming. Then a condition fails.
Is conditions precedent the same as an interest rate?
Conditions precedent is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.
Which products does conditions precedent apply to?
Term Loan, Business Line of Credit, SBA Loan, Equipment Financing, Invoice Financing, Asset-Based Lending.
Is there a worked example of conditions precedent?
Yes, on this page, and it is labelled illustrative. It shows the arithmetic, not a quote from any lender.
What else should I read alongside conditions precedent?
Closing costs, Commitment letter, Corporate resolution, Good faith deposit, Good standing.
Has this definition been checked?
Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.
Is this legal advice?
No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.
Can I suggest a term?
Yes — [email protected]. The glossary grows from what people are actually shown in contracts.