You are reading the undertakings section of your term sheet. One of the conditions is the Cross-default covenant. Here is what it controls, why the bank includes it, and what to check before you sign.
What the bank is measuring
A cross-default clause triggers a default under this loan if the borrower defaults on any other debt obligation — even with a different lender. Some clauses include a materiality threshold (e.g., defaults above €50,000 or €100,000); others trigger on any default.
What this means: Creates a domino effect: a single missed payment or covenant breach on one facility can cascade into defaults across all facilities with cross-default provisions. This accelerates the entire debt stack simultaneously.
What to check
Materiality threshold: clauses with a minimum amount (e.g., €50K-€100K) are less aggressive than zero-threshold triggers
Scope: some clauses cover only financial indebtedness; others include trade payables, leases, or guarantees
Cure period: check whether a cure period on the underlying default prevents cross-default triggering
Cross-acceleration vs. cross-default: cross-acceleration only triggers if the other lender actually accelerates — cross-default triggers on the underlying event itself
How to negotiate
Most covenant terms are negotiable at the term sheet stage, before the legal documentation is drawn up. With the Cross-default 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 Cross-default 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 Cross-default covenant?
A cross-default clause triggers a default under this loan if the borrower defaults on any other debt obligation — even with a different lender. Some clauses include a materiality threshold (e.g., defaults above €50,000 or €100,000); others trigger on any default.
What does a Cross-default covenant restrict?
Creates a domino effect: a single missed payment or covenant breach on one facility can cascade into defaults across all facilities with cross-default provisions. This accelerates the entire debt stack simultaneously.
Can you negotiate a Cross-default covenant?
Most covenant terms are negotiable at the term sheet stage, before the legal documentation is drawn up. With the Cross-default 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.