Your relationship manager just emailed you a PDF. Fourteen pages. The subject line says something like “Indicative Term Sheet — Senior Secured Term Loan Facility.” You open it.
Some words you recognize: interest rate, maturity date, loan amount. Others feel like they were written to confuse you. Negative pledge. Material adverse change. Cross-default. Pari passu.
Here is the thing most borrowers don’t realize: this document is not a formality. It is the bank’s opening offer. Every clause that survives into the final credit agreement starts here. And you typically have two to four weeks to respond before the offer expires. That makes this the single highest-leverage moment in your entire financing process.
Most Belgian SMEs sign without pushing back. The ones who do negotiate can save significantly. Negotiating 50 basis points off your margin on a €500K five-year loan saves roughly €12,500 in interest alone. Add fee waivers and collateral improvements, and total savings of 15 to 25% on your all-in borrowing cost are common. The difference comes down to one thing: understanding what you’re looking at.
What a term sheet actually is
A term sheet (also called an indicative offer or letter of intent) outlines the key commercial terms of a proposed credit facility. In Belgium, banks issue one after an initial credit committee screening. It is non-binding. Neither side is committed until the full loan agreement is signed by both parties.
But “non-binding” is misleading. In practice, the commercial terms (rate, margin, covenants, fees) almost always carry through unchanged to the final agreement. The legal sections get expanded during documentation, but rarely rewritten. Once lawyers draft the full contract, your banker will tell you “legal has already signed off” and flexibility drops to near zero. The term sheet stage is where you have real power. Use it.
One more detail borrowers miss: the term sheet has an expiry date. Typically two to four weeks. If you don’t respond in time, the bank can withdraw or reprice the offer. So start your review the day it arrives.
Key takeaway: The term sheet is your highest-leverage negotiation window. Every number and clause is still movable. After this stage, your options narrow fast.
Facility structure: what type of loan you’re getting
The first section tells you the type of credit: a term loan (amortizing or bullet), a revolving credit facility (RCF), or a combination. Most Belgian KMO loans run 3 to 7 years. In Belgian banking, you may also see an overdraft facility called a “kaskrediet,” which is a separate product. A kaskrediet is typically uncommitted (the bank can withdraw it), while a committed RCF has formal availability and drawdown terms. The term sheet usually describes the committed facility. Check that the maturity matches your business plan. A 5-year expansion financed with a 3-year bullet loan means refinancing mid-project, at whatever rate the market offers then.
Verify the loan amount matches what you requested. Banks sometimes approve less than asked, and the difference shows up here quietly. Also check the purpose clause: “general corporate purposes” gives you flexibility, while “acquisition of [specific asset]” restricts how you can use the funds. If your plans might evolve, negotiate a broader purpose clause now.
Many term sheets bundle the main loan with ancillary facilities: a revolving credit line, a bank guarantee facility, or both. These have separate pricing and conditions. Read them individually. The headline terms of the term loan may look competitive while the RCF pricing is above market.
Repayment schedule: where your cash flow meets reality
This is the section your accountant looks at first. The repayment profile determines how much cash leaves your business every quarter, and that matters more to your day-to-day operations than the interest rate does.
Four structures exist. Linear amortization means equal principal payments: a €500K loan over 5 years costs you €100K per year in principal alone, plus interest on the declining balance. Annuity means equal total payments (principal + interest combined), so early payments are mostly interest and later payments are mostly principal. Bullet means you pay only interest during the term and repay the full amount at maturity. Balloon is a hybrid: smaller regular payments with a large final payment.
Most Belgian KMO loans use linear amortization. It is the most straightforward and gives the bank steady principal recovery. But if your cash flow is seasonal or your investment takes time to generate returns, negotiate for a grace period on principal (typically 6 to 12 months) or an annuity structure that front-loads interest and eases the early cash burden.
Also check the drawdown mechanics. Can you draw the full amount immediately, or is it phased? The availability period (typically 3 to 6 months) sets your deadline to draw. Miss it and the commitment expires. For construction or phased investments, confirm that partial drawdowns are allowed.
Pricing: the interest rate section (and what’s hiding behind it)
The interest rate gets all the attention. But the headline number is rarely the full story.
Belgian bank pricing for SMEs follows a “base rate + margin” structure. For variable-rate loans, the base is usually 3-month or 6-month EURIBOR. The margin is the bank’s profit, and it is where your negotiation matters most. For mid-market Belgian SMEs, margins typically range from 1.50% to 3.50% depending on sector risk, leverage, and collateral quality. Where you land in that range depends partly on your financials and partly on something less obvious: your “share of wallet.” A borrower who runs daily banking, payments, and insurance through the same bank gets 20 to 50 basis points better pricing than one who only comes for the loan.
The biggest decision in this section is one many borrowers don’t even realize they’re making: fixed versus variable. Variable gives you upside if rates drop but exposes you to increases. Fixed locks in certainty at a premium. With EURIBOR currently around 2.5%, the choice between a 5-year fixed at roughly 4.0% and a variable at EURIBOR + 1.80% (currently about 4.3%, but potentially lower if the ECB cuts further) is a genuine dilemma. There is no universally right answer. It depends on your risk appetite and how long you plan to hold the debt.
Two technical details that quietly cost you money. First, the day count convention: the difference between ACT/360 and ACT/365 adds several basis points to your effective annual cost because ACT/360 divides by 360 days but charges you for 365. Second, the interest period: 1-month, 3-month, or 6-month EURIBOR. Longer periods give more predictability per period but typically carry a slightly higher base rate.
Ask whether a margin ratchet is available. Good ratchets work both ways: your margin steps down if your leverage improves, up if it deteriorates. One-way ratchets (margin can only increase) are a red flag. We cover those in our 10 Red Flags guide.
Fees: where the real costs hide
A 4.5% interest rate sounds reasonable until you add the arrangement fee, the commitment fee on undrawn amounts, the “dossierkosten,” and the prepayment penalty. On a €500K loan over 5 years, fees can add 0.3% to 0.5% to your effective rate. That is €7,500 to €12,500 that does not appear in the headline number.
The main fees you will see: arrangement fee (0.25% to 1.00% of the facility, paid upfront), commitment fee on undrawn amounts (30% to 50% of the margin, charged quarterly on money you have committed but not yet drawn), and prepayment penalty (compensation to the bank if you repay early). Belgian banks also commonly charge a separate file fee (“dossierkosten”) of €500 to €2,500.
Each of these is negotiable. The arrangement fee is the easiest to reduce because it is a one-time payment and banks often waive part of it to win the deal. Commitment fees can be pushed from 50% to 25% of margin. Prepayment penalties matter most for flexibility: if a competitor offers better terms next year, a high penalty locks you in. For variable-rate business loans in Belgium, prepayment compensation is legally capped at 6 months’ interest under the Code of Economic Law (Wetboek van Economisch Recht, article VII.145). This cap applies to KMO credit agreements specifically, so verify your company qualifies (most Belgian SMEs do). Many borrowers don’t know this protection exists.
One fee most people discover too late: the amendment fee. If you need to change any term after signing (a covenant waiver, a maturity extension, a collateral substitution), the bank charges a fee per amendment. For smaller KMO facilities under €250K, expect €500 to €2,500. For mid-market deals, €2,000 to €10,000. It is not in the term sheet. But it is in the loan agreement. Ask about it now.
Key takeaway: The headline interest rate is the number the bank wants you to focus on. Your actual cost includes fees, day count conventions, and commitment charges. Calculate the all-in cost before you compare offers. That is exactly what Credia’s Total Cost Calculator is built to show you.
Covenants: the section that matters most
Covenants are the rules your bank writes into the agreement. Financial covenants set numerical thresholds (like a maximum Net Debt / EBITDA ratio or a minimum interest coverage ratio). Operational covenants restrict what you can do without the bank’s consent (like taking on additional debt, paying dividends, or changing ownership). Breach one and the bank can accelerate the loan, freeze further drawdowns, or force renegotiation on their terms.
Most Belgian KMO term sheets contain 3 to 5 covenants. If you see 7 or more, the bank considers you higher risk. Covenants are typically tested quarterly or semi-annually based on management accounts. Annual testing (only on audited accounts) is a concession you can negotiate, and it buys you time.
A quick rule of thumb: you should have 20 to 25% headroom on every financial covenant at signing. If your projected leverage is 2.5x, the covenant should be set at 3.0x to 3.25x. If the bank is offering 2.75x, that is too tight. You will breach in a single slow quarter.
We have written a dedicated guide covering every covenant type you will encounter (financial and operational) with specific Belgian market thresholds for each. Read it alongside this article. And check our negotiation guide for specific tactics on pushing back on covenant levels.
Security package: what collateral the bank wants
The security section lists what the bank takes as collateral: real estate mortgages, a pledge on business assets (“pand op de handelszaak”), a pledge on receivables, cash deposits, or personal guarantees from directors. In Belgium, the pledge on business assets is the most common form of SME loan security. Personal guarantees from directors are standard for smaller facilities.
The principle to insist on: proportionality. A €300K loan should not require a first-ranking mortgage on a €2M property. Ask instead for a “hypothecair mandaat” (mortgage mandate). It is cheaper to register (saves €3,000 to €8,000 in notary fees) and gives the bank the right to take a full mortgage later, only if needed. Many banks will accept this for loan-to-value ratios below 50%.
Personal guarantees deserve special attention. Always push for three things: a cap (25% to 50% of the facility amount, not “unlimited” or “for all sums due”), a sunset clause (the guarantee reduces as the loan amortizes), and a release trigger (the guarantee drops away entirely when your leverage ratio falls below a threshold, such as 1.5x Net Debt / EBITDA). If the bank asks for a guarantee from your spouse, know that this practice has been increasingly challenged in Belgian courts. Push back on it.
Also check whether the bank’s security is first-ranking or second-ranking. If another bank already holds a first mortgage on the same property, your new bank gets a second position. That affects their recovery expectations and may lead to tighter covenants elsewhere in the deal.
Conditions precedent: the checklist before you get the money
Before the bank releases any funds, you need to deliver a stack of documents. This is the conditions precedent (CP) section, and it is the most common reason for drawdown delays. A typical Belgian KMO CP list includes: constitutional documents (articles of association), the last 2 to 3 years of financial statements, a tax compliance certificate (“attest geen schulden RSZ/FOD Financiën”), insurance certificates naming the bank as co-insured, a board resolution authorizing the borrowing, KYC documentation, a certificate confirming no material adverse change has occurred since the term sheet date, and a legal opinion on the enforceability of the security package.
Start gathering these the day you sign the term sheet, not when you sign the loan agreement. Some items take weeks to obtain. The legal opinion alone typically requires 2 to 3 weeks from your lawyer. If you cannot deliver all CPs within the availability period, you cannot draw.
One negotiation point worth raising: ask if certain CPs can be converted to “conditions subsequent” (to be delivered within 30 to 60 days after drawdown). This lets you access the funds while finishing the paperwork. Banks will typically agree for administrative items like insurance certificates or notarial deed registration, but not for financial statements or KYC.
Representations, undertakings, and events of default
Three closely related sections that most borrowers skim. That is a mistake.
Representations are statements of fact you make at signing: your financial statements are accurate, there is no pending litigation, you own the assets you’re pledging. If any representation turns out to be false, it is an immediate event of default.
Undertakings are ongoing promises: you will maintain insurance, you will deliver financial statements on schedule (audited within 120 days of year-end, management accounts within 45 to 60 days of each quarter-end), you will notify the bank of any material event. This is one-way transparency. You must tell them about problems. They do not have to tell you about their concerns.
Hidden inside the undertakings, you will often find restrictions that function as covenants but are not labeled as such: limits on additional debt, restrictions on asset disposals, prohibitions on M&A, dividend restrictions, and related-party transaction rules. If you only read the section explicitly titled “covenants,” you will miss these. Read the undertakings word by word.
The events of default section is the nuclear clause. It lists every condition under which the bank can demand immediate repayment: covenant breach, failure to pay on time, cross-default with other lenders, insolvency proceedings, material misrepresentation, and material adverse change. This section is typically the most aggressively drafted language in the entire document. Read it with your red flags checklist open.
Key takeaway: The sections borrowers skip (representations, undertakings, events of default) are the ones with the biggest consequences. A missed reporting deadline is a technical default, even if every financial number is fine. Read every line.
What to do next
You now know what each section contains and what to look for. The next step is knowing whether your specific terms are fair. That requires a benchmark.
Upload your term sheet to Credia. In 30 seconds, we extract every line (pricing, covenants, fees, collateral) and compare it against real Belgian market data. You will see exactly what is standard, what is aggressive, and where you have room to push back. Then read our negotiation guide for specific tactics to use in your next bank meeting.
Frequently asked questions
Can I negotiate a term sheet?
Yes. Everything in a term sheet is negotiable. Your banker expects you to push back. If you accept the first offer without questions, the bank assumes you did not read it carefully. The most common negotiation points are the margin, personal guarantee structure, covenant headroom, and fee waivers. Approaching a second bank for a competing offer is the single most effective tactic. See our full negotiation guide.
Is a term sheet legally binding?
Generally, no. A term sheet is an indicative, non-binding proposal. Neither party is legally committed until the full loan agreement is signed. However, two elements often are binding: any confidentiality clause and the exclusivity period (if one exists). And while not legally binding, the moral obligation is strong. If you accept a term sheet, the bank expects you to proceed to documentation. Walking away after acceptance damages the relationship.
Do I need a lawyer to review a term sheet?
For the final loan agreement, yes. For the term sheet stage, not necessarily. An accountant with financing advisory experience can often identify the key issues. Many Belgian accountants (“boekhouders”) advise their clients on term sheets as part of their service. A tool like Credia can extract and benchmark every term in minutes, giving you the data foundation for the conversation. Save the lawyer for the legal documentation stage where their expertise matters most.
How long should I take to review a term sheet?
Most Belgian bank term sheets have a validity period of two to four weeks. That sounds like plenty, but the clock starts the day the offer is issued, not the day you open the email. A structured review takes 3 to 5 business days: one day for your own initial read, one day for your accountant or advisor, one day for Credia analysis and benchmarking, and one to two days for follow-up questions to the bank. Start immediately. Do not let a term sheet sit in your inbox.
What if I don’t understand a clause?
Ask. Your relationship manager is required to explain every term. If they cannot explain it clearly, that is a red flag about the bank, not about you. Belgian law (the Code of Economic Law) requires lenders to provide clear information to KMO borrowers. You can also upload your term sheet to Credia for a plain-language breakdown of every clause, scored and benchmarked against market data.
What is the difference between a term sheet and a loan agreement?
The term sheet is the outline: 8 to 15 pages, non-binding, covers the commercial terms. The loan agreement is the binding contract: 40 to 80+ pages, drafted by lawyers, covers everything including detailed representations, events of default, and governing law. The term sheet sets the terms. The loan agreement makes them enforceable. Your negotiating power is highest at the term sheet stage because nothing has been committed to legal documentation yet.
How does Credia help with term sheet analysis?
Upload your term sheet PDF. Credia’s AI extracts 78 data points across pricing, covenants, fees, collateral, and conditions. Each data point is scored and benchmarked against Belgian market data. You get a structured report showing what is standard, what is aggressive, and where you have negotiation room. The free analysis takes 30 seconds. No account required.