Financing agreement: key clauses, covenants and security under Dutch law

A financing agreement is the contract in which a lender or investor and a company agree on what terms money is provided, what it may be used for, and what happens if the borrower breaks its undertakings. A loan between businesses is governed by Title 2C of Book 7 of the Dutch Civil Code (BW), in force since 1 January 2017, and otherwise by general contract law, so the document itself decides almost everything; the main exceptions are the mandatory rules on security rights and the Financial Supervision Act for lending to consumers.

This article explains what a Dutch financing agreement contains, how covenants and security work, what borrower and lender should each check, and what to do when a covenant is about to be breached.

What is a financing agreement under Dutch law?

Under Title 2C of Book 7 BW, a loan agreement (geldlening) is a contract in which one party provides a sum of money and the other undertakes to repay the same amount. Drawdown mechanics, interest, covenants, security and events of default are all contractual additions to that basic rule.

Freedom of contract has a counterweight. Under Article 6:248 BW reasonableness and fairness apply to every contract, and a clause does not apply where relying on it would be unacceptable in the circumstances. Dutch courts interpret contracts using the Haviltex standard of the Supreme Court (Hoge Raad): what the parties could reasonably expect from each other, not only the literal wording. In negotiated financing documents between advised parties, the text carries great weight, but an entire agreement clause does not exclude this test completely.

For the borrower, the agreement fixes the price and availability of money and defines what the company may still do without consent. For the lender, it turns the credit assessment at signing into continuing obligations, information rights and triggers to intervene.

When does financial regulation apply?

Most business-to-business lending in the Netherlands is unregulated. The boundaries are in the Financial Supervision Act (Wet op het financieel toezicht, Wft), supervised by the Dutch Authority for the Financial Markets (AFM) and De Nederlandsche Bank (DNB).

First, a company may not attract repayable funds from the public outside a closed circle without a banking licence or an exemption; splitting a funding round into many small loans does not avoid that rule. Second, lending to consumers requires an AFM licence and brings pre-contractual information duties, a creditworthiness check and a statutory maximum credit charge. The revised EU Consumer Credit Directive applies from 20 November 2026 and extends that regime to short-term and buy-now-pay-later credit.

Third, a crowdfunding platform that matches investors with businesses needs authorisation under the EU crowdfunding regulation. None of this affects an ordinary bilateral loan from a bank, shareholder or private investor to a Dutch BV.

Which clauses does a financing agreement contain?

A two-page shareholder loan and a syndicated facility have the same building blocks: definitions, facility mechanics, representations, conditions precedent, covenants, events of default and boilerplate. The definitions often matter most, because every covenant is measured against them.

Definitions of EBITDA, permitted indebtedness, material adverse effect and the group carry more weight than most operative clauses. A borrower that negotiates the covenant levels but not the definitions has usually achieved little.

The facility mechanics set the amount, purpose, drawdown, interest, fees and repayment. Interest is usually a benchmark such as EURIBOR plus a margin. Check whether there is a floor, what happens if the benchmark ceases to exist, the break costs on early repayment, and how default interest is calculated; it usually applies to the whole outstanding amount once the loan is accelerated.

Representations and warranties are usually repeated on each drawdown and interest date. A statement that was true at signing but is no longer true then becomes an event of default. Conditions precedent list what must be delivered before the first advance, such as board resolutions, the signed security documents and legal opinions.

In cross-border deals the parties can choose the governing law under the EU Rome I Regulation, and jurisdiction within the EU follows the Brussels I bis Regulation. A Dutch security right over Dutch assets is governed by Dutch law, whatever the loan agreement says.

How do covenants and events of default work?

Covenants are undertakings that run for the life of the facility. Affirmative covenants require the borrower to act, negative covenants prohibit acts without the lender’s consent, and financial covenants set tests such as a leverage ratio, interest cover or minimum solvency, usually tested quarterly.

Affirmative covenants include delivering accounts within agreed periods, maintaining insurance and notifying defaults. Negative covenants restrict further debt, security for others, asset disposals, acquisitions and dividends.

Two Dutch rules sit under the dividend restriction. Under Article 2:216 BW, the board of a BV must approve a distribution and refuses only if it knows or should foresee that the company cannot keep paying its due debts afterwards; directors who approve such a distribution are liable for the shortfall. A loan agreement that permits a distribution does not replace that test. And under the Supreme Court’s Beklamel standard, a director who commits the company to obligations he knows or should know it cannot meet can be personally liable under Article 6:162 BW.

What does an event of default trigger?

An event of default does not end the facility by itself; it gives the lender the right to stop drawdowns, accelerate the loan, raise the margin and enforce security. In practice it is mostly used as leverage, because calling a loan destroys value for the lender as well.

Read the clauses that decide how easily the trigger is pulled: grace periods and cure rights, materiality thresholds, the definition of a material adverse change, and cross-default clauses that can turn one breach into a group-wide crisis. Acceleration is also tested against Article 6:248 BW: courts have applied a duty of care to banks that end a long-standing facility abruptly. That buys time; it does not save a borrower that cannot pay.

How is security created under Dutch law?

Security rights follow mandatory rules on how they are created and how they rank, so here Dutch law, not the contract, does the work. The main instruments are pledge, mortgage and personal guarantees.

A right of pledge (pandrecht) can be created over movables, receivables, shares, bank accounts and intellectual property. A pledge over receivables can be disclosed to the debtors or undisclosed. Under Article 3:239 BW an undisclosed pledge requires a notarial deed or a registered private deed, and only covers receivables that already exist or arise directly from an existing legal relationship. A facility agreement should therefore require regular top-up pledge deeds.

Since 1 July 2025, Article 3:83(3) BW makes void any clause that excludes or restricts the assignment or pledge of a monetary claim arising from a business or profession. Such clauses in the borrower’s customer contracts can no longer block a pledge or factoring of receivables, with exceptions such as claims under bank accounts and syndicated loans (Article 3:83(4) BW).

A pledge over shares in a BV requires a notarial deed, and under Article 2:198 BW the articles of association may exclude or restrict it. A mortgage (hypotheek) over real estate also requires a notarial deed and registration with the Land Registry (Kadaster). Under Article 3:268 BW the mortgagee can have the property sold at a public auction before a civil-law notary without first obtaining a judgment. A notarial deed of loan is itself an enforceable title, so the lender can proceed straight to attachment.

Guarantees, suretyship and 403 declarations

Personal security takes three main forms: suretyship (borgtocht), an independent first-demand guarantee, and a parent company’s 403 declaration. Each has a different legal character.

A suretyship under Book 7 BW is accessory: the surety can invoke the debtor’s defences, and the obligation ends with the main debt. A natural person who stands surety outside the normal course of his business needs the written consent of his spouse under Article 1:88 BW. A first-demand guarantee avoids the accessory character and is what lenders normally ask for. A parent company can accept liability for the debts of a subsidiary by filing a declaration with the trade register under Article 2:403 BW, which also exempts the subsidiary from publishing full accounts.

Which Dutch risks should lenders know about?

Two risks catch foreign lenders. Under Article 22(3) of the Collection of State Taxes Act (Invorderingswet 1990), the Tax Administration (Belastingdienst) can recover certain tax debts, such as payroll tax and VAT, from movables on the debtor’s premises, even if a lender holds a pledge over them (bodemvoorrecht).

Second, security granted shortly before insolvency without a prior obligation can be set aside by the bankruptcy trustee under Article 42 of the Bankruptcy Act (actio pauliana). Agree the security at the same time as the credit. Our guide to financing and securities for Dutch companies and our article on financial security within corporate law go into more detail.

Which financing structure fits your company?

The structure decides which clauses matter, so choose it before drafting. Dutch companies typically use one of five structures.

Where more than one lender is involved, an intercreditor agreement decides who ranks where, who may enforce and who receives the proceeds. In a distressed scenario it decides the outcome.

For acquisitions: the ban on financial assistance was abolished for the BV in 2012, so a Dutch BV may support the financing of its own acquisition. For the NV it remains in Article 2:98c BW. A subsidiary that grants security for its parent’s debt must still have a genuine interest of its own, and Article 2:216 BW still applies to any distribution.

What should you check as a borrower?

Most of the outcome is decided before signing. Check these points against your own figures.

• Model each financial covenant against your forecast, including a downside case, and negotiate the definitions, not only the levels.
• Check that you can deliver the required reports and compliance certificates on time.
• Read the negative covenants for transactions you may need later: acquisitions, disposals, extra debt, dividends.
• Check the prepayment costs, the cross-default clause and the deadline for the lender to answer consent requests.
• Ask your tax adviser about interest deduction limits and withholding tax before signing.

What should you check as a lender?

Your protection depends on enforceable security and early information. Check these points before the first advance.

• Are all security documents executed in the required form: notarial deed, registered deed or Kadaster registration?
• Does the agreement require periodic top-up pledges of new receivables under Article 3:239 BW?
• Have you allowed for the tax authority’s priority over assets on the borrower’s premises?
• Do the articles of association allow the share pledge, and do group companies have their own interest in guaranteeing?
• Was the security agreed together with the credit, so it is not open to an actio pauliana?

What should you do when a covenant is about to be breached?

Tell the lender before the test date, with a calculation and a plan. A borrower that raises it six weeks early is in a better negotiation than one whose breach appears in a compliance certificate afterwards.

The usual outcomes are a waiver for one test date, an amendment resetting the covenant levels, or an amendment with new money. Each costs a fee, a higher margin, tighter reporting or extra security, but is almost always cheaper than acceleration. Read the waiver letter carefully, because it often tightens other terms.

Where the problem is structural, the Act on court confirmation of extrajudicial restructuring plans (WHOA), in force since 1 January 2021, lets a company offer its creditors a restructuring plan. If the required class majorities are met, the court can confirm it so that it binds dissenting creditors as well. Our article on the WHOA restructuring scheme explains the process, and our guide to bankruptcy for entrepreneurs and creditors covers what happens if restructuring fails.

What can we do for you with a financing agreement?

Our corporate lawyers and contract lawyers act for companies, shareholders and lenders; the surrounding company law is set out in our corporate law guides.

• We review a term sheet or facility agreement and mark the covenants, definitions and default clauses that need negotiation.
• We draft shareholder loans and intercompany loans, including subordination.
• We draft and check pledges, mortgages, guarantees and 403 declarations, together with the civil-law notary.
• We prepare waiver and amendment requests and negotiate them with the lender.
• We advise directors on their personal exposure when the company borrows or distributes under pressure.

Summary

• A business loan is governed by Title 2C of Book 7 BW and general contract law; the document decides almost everything.
• Covenants, definitions and cross-default clauses decide the borrower’s freedom more than the interest rate does.
• Security follows mandatory rules: notarial or registered deeds, and since 1 July 2025 bans on pledging business receivables are void under Article 3:83(3) BW.
• Directors remain bound by the distribution test of Article 2:216 BW whatever the loan agreement permits.
• Raise a looming covenant breach early; the WHOA is available for structural problems.

Frequently asked questions