Legal Definitions - cleanup clause

A cleanup clause is a provision in a loan agreement that requires the borrower to repay the loan in full within a specific period. After the loan is repaid, the borrower is not allowed to take out any further loans for a specified "cleanup" period.

Suppose a company takes out a loan with a cleanup clause that requires the loan to be repaid in full within three years. After the loan is repaid, the company cannot take out any further loans for the next six months.

This clause is designed to ensure that the borrower does not become overly reliant on debt and is able to manage their finances responsibly. It also protects the lender by reducing the risk of default and ensuring that the borrower has the means to repay the loan.

Overall, the cleanup clause is an important provision in loan agreements that helps to promote responsible borrowing and lending practices.