When a term sheet lands, attention goes straight to the interest rate. In practice, the margin is often the least negotiable and least dangerous part of the document. The clauses around it — covenants, security, control — are where the real risk sits, and where a finance-and-law reading earns its keep.
These are the ongoing tests you promise to meet — commonly maximum leverage, minimum interest cover or minimum DSCR. The danger is not their existence but their headroom: a covenant set too close to your forecast can trip on a single soft quarter, handing the lender control. Always model your covenants against a realistic downside, not just the base case, and negotiate cushions accordingly.
What you pledge — and what you guarantee personally — defines what you stand to lose. Watch for all-asset debentures, cross-collateralisation across facilities, and personal guarantees that move risk from the company to you. These are negotiable far more often than borrowers assume.
A change-of-control clause can make the facility immediately repayable if your ownership changes — for example on a new investment round or a sale. If you may raise equity or exit during the life of the loan, this clause can directly constrain that future transaction. Spot it early and seek carve-outs.
A MAC clause lets a lender withhold funding or call a default on a broadly defined "material adverse change." Loosely drafted, it transfers significant discretion to the lender. Tightening the definition — to specific, measurable events — limits that discretion.
Cash sweeps (requiring surplus cash to repay debt early), restrictions on dividends, and limits on raising further debt all shape how you can run the business while the facility is live. None are unusual; all are negotiable, and each should be weighed against your actual plans.
Read the documents against the model, not in isolation: the question is always how each clause behaves under your real forecast and your likely future moves. The point is not to resist every term — lenders need protections — but to understand which clauses change the economics or your freedom to act, and to negotiate those before signing rather than discover them afterwards.
This article is general information, not regulated legal advice, and is not a substitute for licensed local counsel on the documents specific to your transaction.
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