Acceleration Clause
An acceleration clause or acceleration covenant is a clause in a loan agreement that states the scenarios under which a lender can require a borrower to repay all or part of a loan sooner than initially agreed upon. In some cases, this clause is triggered if an action by the borrower constitutes a breach of contract.
This covenant is common in real estate deals. However, they may also be included in a domain name or website sale agreement which involves seller financing.
A common situation that could trigger an acceleration clause is a change of ownership. For example, a website buyer may have the right to sell the website to another buyer prior to paying off the entire debt owed to the seller. The seller may decide that he is not comfortable receiving future debt payments from a new buyer whose creditworthiness he is unfamiliar with. Thus, he could require that the original buyer pay the entire debt balance upon a change of ownership. In this case, an acceleration clause in the website purchase agreement would cover this scenario.
Author: Kris Tabetando
Kris Tabetando provides mergers & acquisitions (M&A) advisory and brokerage services to Internet companies. He also partners with investors to acquire & manage Internet businesses.
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