You are reading the undertakings section of your term sheet. One of the conditions is the Change of control covenant. Here is what it controls, why the bank includes it, and what to check before you sign.
What the bank is measuring
A change of control clause triggers loan acceleration or mandatory repayment if ownership or management control of the borrower changes beyond a specified threshold.
What this means: Selling equity, bringing in new investors, or transferring management control can trigger immediate repayment obligations. This affects exit planning and fundraising.
What to check
Threshold: typically 50% ownership change, but can be lower (30% in some agreements)
Management change: some clauses trigger on key person departure, not just ownership
Consent vs. acceleration: some agreements allow the lender to consent rather than automatically accelerating
How to negotiate
Most covenant terms are negotiable at the term sheet stage, before the legal documentation is drawn up. With the Change of control 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 Change of control 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 Change of control covenant?
A change of control clause triggers loan acceleration or mandatory repayment if ownership or management control of the borrower changes beyond a specified threshold.
What does a Change of control covenant restrict?
Selling equity, bringing in new investors, or transferring management control can trigger immediate repayment obligations. This affects exit planning and fundraising.
Can you negotiate a Change of control covenant?
Most covenant terms are negotiable at the term sheet stage, before the legal documentation is drawn up. With the Change of control 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.