You are reading the undertakings section of your term sheet. One of the conditions is the Additional debt restriction covenant. Here is what it controls, why the bank includes it, and what to check before you sign.
What the bank is measuring
A restriction on additional indebtedness requires lender consent before taking on new debt. This covers bank loans, bonds, credit lines, equipment leases, and sometimes vendor financing.
What this means: Limits financing flexibility. Seasonal borrowing needs, equipment upgrades, or opportunistic acquisitions require advance lender approval, which may not be granted.
What to check
Carve-outs: many agreements permit small baskets of additional debt (e.g., up to €100K without consent)
Leases: post-IFRS 16, operating leases may count as debt — check the definition
Intercompany loans: may be permitted but often subordinated
How to negotiate
Most covenant terms are negotiable at the term sheet stage, before the legal documentation is drawn up. With the Additional debt restriction covenant, focus on the definition, the threshold, the testing frequency, and the cure period. Ask your relationship manager what flexibility exists, and have your accountant confirm the level is one your business can hold comfortably. Read every line.
What to do next
The fastest way to see whether a Additional debt restriction covenant — and every other condition — is in your term sheet is to let Credia read it for you. Upload the PDF and you get every covenant identified and explained, in plain language, in under two minutes.
Analyse your term sheetFrequently asked questions
What is a Additional debt restriction covenant?
A restriction on additional indebtedness requires lender consent before taking on new debt. This covers bank loans, bonds, credit lines, equipment leases, and sometimes vendor financing.
What does a Additional debt restriction covenant restrict?
Limits financing flexibility. Seasonal borrowing needs, equipment upgrades, or opportunistic acquisitions require advance lender approval, which may not be granted.
Can you negotiate a Additional debt restriction covenant?
Most covenant terms are negotiable at the term sheet stage, before the legal documentation is drawn up. With the Additional debt restriction covenant, focus on the definition, the threshold, the testing frequency, and the cure period. Ask your relationship manager what flexibility exists, and have your accountant confirm the level is one your business can hold comfortably. Read every line.