Financing contingency Transaction
Definition
Clause in a purchase agreement that protects a prospective buyer from legal action should financing for the purchase consideration fall through. Also can be more informal, referring simply to whether a buyer's ability to finance a transaction is subject to certain conditions.
Comments
Typically, investment bankers and selling companies will vet out any financing contingencies at the beginning stages of a transaction. Rather than wait until the purchase agreement stage of a transaction, bankers will find out whether a buyer's financing ability is questionable (at least in comparison to other interested parties), by outlining in the process letter to include any financing contingencies as part of the letter of intent.
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