You are reading a term sheet from your bank. Most of it looks reasonable. The rate is close to what you expected. The maturity works. Then you get to page 6.
That is where the clauses live that most borrowers sign without a second thought. Clauses that can cost you tens of thousands of euros, give your bank the power to change your terms unilaterally, or lock you into a deal you cannot exit. We have read hundreds of Belgian term sheets. Some are fair. Some are aggressive. Here are the 10 warning signs we see most often.
For context on how each section fits into the broader document, see our complete term sheet reading guide. For the full taxonomy of covenant types referenced below, see our covenants guide.
1. Uncapped personal guarantee
What to look for: The guarantee section says “unlimited,” “for all sums due,” or “solidaire en ondeelbare borgstelling voor alle verbintenissen.” No cap. No expiry. No reduction schedule.
Why the bank does this: An uncapped guarantee gives the bank full recourse to your personal assets if the company defaults. It is the cheapest form of credit enhancement for them. The less they have to think about recovery scenarios, the easier the deal is to approve internally.
How to push back: Always negotiate three things. A cap (25% to 50% of the facility, not the full amount). A sunset clause (the guarantee reduces as the loan amortizes, dropping by 20% each year). A release trigger (the guarantee falls away entirely when your leverage ratio drops below 1.5x). If the bank asks for a guarantee from your spouse, push back hard. Belgian courts have increasingly challenged spousal guarantees, and many banks will drop the request if pressed.
2. Cross-default with unrelated facilities
What to look for: “An event of default shall occur if the Borrower defaults under any Financial Indebtedness.” The key word is “any.” Cross-default with facilities at the same bank is standard. Cross-default with all financial indebtedness everywhere (leases, trade facilities, loans at other banks) is aggressive.
Why the bank does this: The bank wants early warning if you are in trouble elsewhere. If you default on a €20K lease payment, the bank wants to know before the situation deteriorates further.
How to push back: Negotiate a de minimis threshold. A €50K or €100K floor means that a missed €5K trade payment does not trigger a cross-default on your main facility. Also push for the cross-default to be limited to bank debt only, excluding leases and trade credit. And insist that it requires actual acceleration by the other creditor, not just a technical default.
3. Material Adverse Change clause
What to look for: “The Bank may cancel or reduce the Facility if, in the Bank’s opinion, a material adverse change has occurred.” The words “in the Bank’s opinion” and the absence of a numerical definition are the red flags.
Why the bank does this: The MAC clause is the bank’s escape hatch. If your business deteriorates significantly, the bank wants the option to exit or renegotiate before covenants formally breach. It is the nuclear option they rarely use but always want available.
How to push back: Push for an objective, numerical definition. For example: “a decline in EBITDA of more than 25% compared to the most recent audited accounts, sustained over two consecutive quarterly testing periods.” This replaces subjective bank discretion with a measurable threshold. Also negotiate that the MAC cannot be triggered if all financial covenants are being met. If your numbers are in range, the MAC should not apply.
Key takeaway: A vaguely worded MAC clause gives the bank an exit at precisely the moment you need them most. If it is not defined numerically, it is not a clause. It is a blank check.
4. EURIBOR floor above zero
What to look for: “The Reference Rate shall be deemed to be not less than [0.50%/1.00%].” A 0% floor is standard and fair (you should not be paying negative interest). A floor above 0% is the bank locking in a minimum cost regardless of where rates go.
The math: On a €500K variable-rate loan with a 1.80% margin, a 0% floor means your minimum rate is 1.80%. A 0.50% floor means your minimum is 2.30%. Over a 5-year term, that 0.50% difference costs you roughly €12,500 in a low-rate environment. During the low-rate years (2015 to 2021), this was the difference between fair pricing and an invisible surcharge.
How to push back: Ask for a 0% floor or no floor at all. If the bank insists on a positive floor, negotiate a corresponding margin reduction. If they want a 0.50% floor, the margin should drop by 0.25% to offset. The principle matters regardless of the current rate environment.
5. Ratchet without downward adjustment
What to look for: A margin ratchet grid that only shows increases. The margin steps up from 2.00% to 2.25% if leverage exceeds 3.0x, to 2.50% if it exceeds 3.5x. But there is no step-down row for when leverage improves below 2.5x.
Why the bank does this: The bank gets more revenue when you underperform but gives nothing back when you outperform. From their risk model perspective, the ratchet is a pricing adjustment for higher risk. But a symmetric ratchet costs the bank nothing in good times and shows good faith.
How to push back: Insist on a two-way ratchet. If the margin goes up when your leverage worsens, it should come down when leverage improves. A typical symmetric grid might look like: below 2.0x = 1.60%, 2.0x to 2.5x = 1.80%, 2.5x to 3.0x = 2.00%, above 3.0x = 2.25%. The step-down gives you a direct financial incentive to improve your metrics.
6. All-assets security package
What to look for: “A first-ranking pledge over all present and future assets of the Borrower.” This claims everything: equipment, inventory, receivables, IP, even assets you acquire after signing.
Why the bank does this: Maximum recovery in a default scenario. But it also blocks you from using those assets as security for other financing. Need a lease for new equipment? The leasing company cannot take security on it. Need trade finance? The factor cannot take a pledge on receivables. An all-assets pledge effectively makes this bank your only possible creditor.
How to push back: Negotiate security that is proportionate to the loan. A €300K loan should not require a pledge on €2M of assets. Propose specific security (e.g., a pledge on the equipment being financed) plus a “hypothecair mandaat” instead of a full mortgage. And insist on permitted security baskets that carve out leasing, trade finance, and liens arising by operation of law.
Key takeaway: An all-assets security pledge is not just about this loan. It prevents you from raising any other financing. If you sign it, this bank becomes your only option for the life of the loan.
7. Prepayment penalty above market
What to look for: For variable-rate loans, any prepayment compensation above the legal cap is a red flag. For fixed-rate loans, check the break cost calculation method. “Flat 2% of outstanding principal” on a variable loan is aggressive.
The Belgian legal context: For KMO credit agreements with variable rates, prepayment compensation is capped at 6 months’ interest under the Code of Economic Law (article VII.145). Many banks write penalties that exceed this cap, relying on the borrower not knowing the law. For fixed-rate loans, the bank can charge the present value of the interest rate differential (their funding loss), which can be substantial.
How to push back: For variable-rate loans, simply reference the legal cap. For fixed-rate loans, negotiate a cap on break costs (e.g., maximum 1% of prepaid amount) or push for penalty-free prepayment windows (e.g., no penalty in years 4 and 5). High prepayment penalties lock you in. If a competitor offers better terms next year, you cannot refinance without a steep exit fee.
8. No cure period for covenant breach
What to look for: The events of default section lists covenant breach without any mention of a remedy period. No “30 days to cure.” No notification window. Just: breach = default.
Why this matters: Without a cure period, the bank can technically accelerate the moment a covenant is breached. In practice, Belgian banks rarely do this on a first offense. But the absence of a contractual cure period gives them the legal option, and that option is leverage in any renegotiation.
How to push back: Insist on a 30-day cure period for all financial covenants. Ask for equity cure rights (the ability to inject cash as equity to fix a ratio breach, typically limited to 2 to 3 uses over the loan life). For operational covenants, push for at least a notification period where you inform the bank and discuss a remedy before formal default is declared. For the full mechanics of how covenant breaches work, see our covenants guide.
9. Dividend lock-up without threshold
What to look for: “No distributions or dividends shall be paid without the prior written consent of the Bank.” A blanket prohibition, no permitted basket, no percentage threshold.
Why this hits Belgian KMOs hardest: In owner-managed businesses (which is most Belgian KMOs), the owner draws a significant portion of personal income as dividends. A blanket dividend restriction does not just affect shareholder returns. It disrupts the founder’s personal cash flow. The bank knows this. They include it as a lever.
How to push back: Negotiate a permitted dividend basket. Standard structure: dividends allowed up to 30% to 50% of net profit, provided no default exists and all financial covenants are met with at least 10% headroom. This gives the bank comfort that cash stays in the business when times are tight, while giving you a predictable income flow when the business is performing.
10. Reporting deadlines shorter than your audit cycle
What to look for: “Audited financial statements to be delivered within 60 days of year-end.” If your auditor needs 90 to 120 days (which is normal in Belgium for SMEs), you are in technical default from day one.
The hidden trap: Information covenants are the most commonly breached covenants in Belgian SME lending. Not because the numbers are bad, but because the paperwork is late. Your accountant might deliver quarterly management accounts in 50 days. The bank asks for 45. That 5-day gap is a technical default every single quarter. These breaches stack up and give the bank ammunition in any future renegotiation.
How to push back: Before signing, ask your accountant exactly how long they need for audited accounts and quarterly management accounts. Then add a 15-day buffer. If the bank wants 90 days and your auditor needs 100, negotiate 120. Also clarify what the compliance certificate must contain and who must sign it. The fewer administrative hurdles, the fewer accidental defaults.
What to do next
Print this list. Open your term sheet. Go through each red flag one by one. If you find three or more, the bank’s proposal is aggressive and you should negotiate before signing.
Or upload your term sheet to Credia. We flag every red flag automatically and benchmark each clause against Belgian market data. Then read our negotiation guide for specific tactics on how to push back on each one.
Frequently asked questions
How many red flags is too many?
One or two on this list is normal. Banks draft aggressively and expect pushback. Three or more suggests the deal is structured in the bank’s favor beyond standard practice. Five or more means you should get a competing offer from another bank before negotiating.
Can I refuse a personal guarantee?
For facilities under €500K, personal guarantees from directors are standard in Belgian SME lending. Refusing entirely may kill the deal. But you can always negotiate the cap, duration, and release conditions. For larger facilities with strong collateral, some banks will waive the personal guarantee entirely.
What if the bank refuses to negotiate?
That is a red flag in itself. Belgian SME lending is competitive. If one bank will not move on aggressive terms, another probably will. Get a second offer and use it as leverage. If the bank still refuses on a specific clause, ask them to explain why it is necessary for your specific deal.
Should my accountant review the term sheet for red flags?
Yes. Your accountant should check every financial covenant definition against your actual reporting, verify that reporting deadlines are achievable, and confirm that dividend restrictions align with your income planning. A tool like Credia can pre-screen the entire document in 30 seconds and flag the issues for your accountant to review in depth.
How does Credia detect red flags?
Upload your term sheet PDF. Credia’s AI extracts every clause and compares it against Belgian market data for your deal profile. Each red flag is flagged with a severity score and specific pushback recommendations. The analysis takes 30 seconds.