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Introduction

In lieu of (or in addition to) a default provision, the parties may decide to implement financial disincentives for violating impact policies or a failure to hit impact milestones in the form of increased interest rates. In such cases, parties must define what triggers the rate increase and the amount of the resulting increase. The definitive documents should make clear that any interest rate increase is subject to usury limitations.

Sample language for interest rate increase based on a single factor

If during the term of the Loan the Company fails to cure the violation of [specify the penalty trigger] within X days, the interest rate shall be increased by X percent, provided that the interest rate shall not be increased above the Initial Rate plus X percent.

Sample language for interest rate increase based on failure to achieve multiple milestones

During the term of the Loan, the interest rate shall be increased by the amount shown in the table below if the Company fails to achieve the corresponding milestone by the target date. In the aggregate, the interest rate shall not be increased above the Initial Rate plus X percent.

 

Impact Milestone Target Date Interest increased by if target not achieved
Milestone 1 00/00/0000 %
Milestone 2 00/00/0000 %

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