Anonymised, illustrative composite. A senior lender's own boilerplate — leverage “subject to final credit committee approval” — turned out to be the one clause in the term sheet that was not actually committed.
At a glance
A sponsor agreed to acquire a mid-sized Ontario engineering consultancy for $6,200,000, against $1,550,000 of trailing EBITDA. At more than five times the CSBFP's $1.15 million per-borrower ceiling, the deal was always going to be financed conventionally: a senior bank facility, a subordinate loan from the Business Development Bank of Canada, and sponsor equity.
The term sheet the sponsor had negotiated with its senior lender contemplated financing at 3.0× EBITDA — $4,650,000 — alongside a $700,000 BDC facility and an $850,000 equity cheque from the sponsor, totalling the $6,200,000 purchase price. Two weeks before the scheduled closing, the senior lender's credit committee came back with a revised number: 2.5× EBITDA, or $3,875,000 — a reduction of $775,000 from what the term sheet had described.
The lender's stated reason was unremarkable on its own terms: a sector-wide tightening in how the bank's credit committee was underwriting professional-services acquisitions that quarter, unrelated to anything specific to this target's own financials. That made it harder, not easier, for the deal team to argue the number back up — there was no target-specific defect to fix, only a house view that had shifted underneath a deal already in its final stretch.
$1,550,000 × 3.0 = $4,650,000 at the original leverage; $1,550,000 × 2.5 = $3,875,000 at the reduced leverage — a $775,000 gap. BDC's own commitment, at $700,000, did not change: BDC is established by its own Act as “for all purposes an agent of the Crown,” with a statutory purpose to support Canadian entrepreneurship and a duty, in carrying out its activities, to “give particular consideration to the needs of small and medium-sized enterprises,” and it held its position while the bank tightened.
Filling the $775,000 gap entirely from sponsor equity took the cheque from $850,000 (13.7% of total sources) to $1,625,000 (26.2% of total sources) — nearly double the sponsor's original commitment, on the same purchase price.
The senior lender's term sheet had carried a single qualifying phrase — leverage “subject to final credit committee approval” — that the deal team had treated as routine boilerplate. It was not: everything else in the term sheet held, and this was the one number that had never actually been committed. Once the committee revisited the file two weeks before close, that clause, not any statute, is what actually decided the outcome.
Rather than renegotiate purchase price with diligence costs already sunk, the sponsor brought in a co-investor to fund the incremental $775,000 alongside its own increased cheque, closing on the revised stack without missing the scheduled date. See the co-investment right glossary entry for how that kind of participation is typically structured, and for a related, statute-driven eligibility problem at a much smaller deal size, a CSBFP application that failed on eligibility.
Without a co-investor able to move on two weeks' notice, the realistic alternatives were a renegotiated purchase price roughly $775,000 lower than what had been agreed, or a broken deal after diligence, legal and financing costs were already committed and largely unrecoverable. A capital stack with a genuinely flexible equity source able to move quickly is what turned a credit-committee reversal from a broken closing into a bigger cheque.
“Subject to final credit committee approval” is standard language on almost every term sheet, which is exactly why it gets read as boilerplate rather than as the live risk it actually is. A deal team that prices in the possibility that a credit-committee-approval clause is the one term that moves — and lines up a standby source of incremental equity before it needs one — is not surprised two weeks before close.
A second, smaller tell sat in the timing itself: the reduced leverage number arrived precisely at the point in the quarter when the lender's committee reviews its sector concentration limits. A deal team that tracks its lender's own internal calendar, not just its own closing calendar, has a better chance of seeing a leverage cut coming before it lands as a surprise.
A 30-minute call is enough to tell you whether AI pays for itself here.
