In today’s competitive lending landscape, it’s easy for SME owners and finance directors to be dazzled by the sheer volume of funding offers available. Term sheets arrive thick and fast, each promising attractive rates, generous tenors, and flexible structures.

But the crux of the matter is that funding offers are largely a commodity. The real differentiation – and the real risk – lies in the covenants.

Covenants are the fine print that governs your relationship with the lender. They dictate what you can and can’t do, how your business must perform, and what happens if you fall short. While the headline terms may look similar across lenders, the covenant package can vary dramatically – and that’s where problems often hide.

We’ve seen businesses accept funding that looked ideal on the surface, only to find themselves constrained by overly tight financial covenants, restrictive operational clauses, or hidden triggers that give lenders undue control. Unsurprisingly, these issues rarely surface during the ‘honeymoon’ period. They emerge when trading gets tough, when acquisitions are on the table, or when cash flow dips – precisely when flexibility is most needed.

That’s when an experienced debt advisor is not just helpful, but essential. They don’t (or shouldn’t) just compare interest rates, but interrogate covenant structures, negotiate terms that align with clients’ strategic goals, and avoid signing up to a deal that could become a straitjacket.

When negotiating both pricing and covenants, experienced advisors use their understanding of nuanced lender behaviour and constant presence in the market to anchor lenders to price levels or terms seen on similar prior deals. Typically, it’s what you don’t know that bites you, and seemingly minor clauses can have meaningful long-term implications. So experience of what can go wrong is invaluable.

The key here is for the advisor to help protect a business from future surprises and ensure the funding supports growth, not hinders it.

So, before you sign on the dotted line, ask yourself: Do I truly understand the covenant package? Have I stress-tested it against my business plan? And most importantly – do I have someone in my corner who’s done this before?

Because in the world of funding, the devil is in the detail; and that detail is rarely in the headline rate.

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Alexei Garan is a Partner - Business Funding at Shaw & Co.

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If you'd like to discuss how Shaw & Co can help you sell, buy or fund the growth of a business, please book a meeting here