Disclaimer: This post is a personal reflection and does not constitute legal advice. Every situation is different — if you need legal advice, email me at [email protected].
Most borrowers think the hard work ends when the term sheet is signed. It doesn’t.
When I was sitting as legal counsel on the bank side, overseeing complex cross-border secured lending transactions through to standard guarantee facilities, I had a unique vantage point.
Borrowers celebrate when the term sheet is signed, assuming the bank’s front office will handle the rest. But from the bank’s perspective, the term sheet is just the beginning. The execution, drawdown, and post-closing phases are highly critical to banks, even though all the borrower usually cares about is getting the facility funded.
Ultimately, a bank does want to lend to a borrower group, but they have strict guardrails that must be complied with. This can sometimes frustrate a borrower who is solely focused on the commercial outcome.
Here are five observations I’ve made from the bank side that every corporate borrower should understand. Keeping these in mind will help smooth out the frustrations in your next deal.
These observations apply whether you are borrowing through an onshore HK entity or through an offshore structure with HK operations. The bank’s internal machinery is the same.
1. Front Office v. Back Office
The Front Office (your Relationship Manager) is your commercial contact point. They are the ones who put the deal together and manage the relationship.
However, the people who actually clear you for onboarding, release the funds, and monitor the loan for the next three to five years are the compliance, legal, and middle-office operations teams. These teams must follow strict internal and regulatory guidelines. You either check every box on their list, or you don’t draw down.
What you need to do: Identify who actually controls the onboarding and drawdown mechanics before you sign. Pre-empt the operations checklist rather than assuming the Front Office can waive requirements.
2. PDFs Don’t Count—You Need Certified True Copies
For client onboarding, borrowers often think that emailing PDFs of their corporate documents (passports, registers, certificates of incorporation) is sufficient.
It’s not. Bank compliance teams don’t just need information; they need evidentiary certainty. Because banks are heavily audited by regulators for KYC and AML compliance, a scanned PDF is only a placeholder. Eventually, they must have a “Certified True Copy” (CTC)—physically signed and stamped by a lawyer, CPA, or company secretary.
What you need to do: Ask upfront exactly what documents the bank requires for onboarding and how they must be certified. Provide a complete, cleanly certified pack of corporate documents from day one. Drip-feeding uncertified documents will only slow your drawdown.
3. Shareholders Don’t Approve Loans—Directors Do
SME founders who own their company outright often assume their signature alone is enough to authorise a loan. They view themselves as “the owners,” and therefore the ultimate authority.
This is a common legal trap. Shareholders own the company, but the Board of Directors has the legal power to manage the business and borrow money. The shareholders and the directors may be the exact same people, but they wear different legal hats. To bind your company to a credit facility, the bank requires properly convened Board Minutes or written resolutions from the directors—not shareholder resolutions. Banks won’t proceed until the governance is correct. Mixing up these hats means the loan hasn’t been validly authorised.
What you need to do: Have your legal counsel draft clean corporate authorities. Always ensure it is the directors who are formally resolving to enter into the facility.
4. The Post-Closing Perfection Window
Borrowers treat post-closing deliverables—like delivering original share certificates, certified board minutes, or paying stamp duty—as administrative chores to complete eventually.
Banks don’t see it that way. Banks operate on strict statutory deadlines for perfecting their security. For example, under the Hong Kong Companies Ordinance, there is a strict one-month window to register a corporate charge at the Companies Registry. If missed, the security becomes void against a liquidator. To the bank, a missed statutory deadline isn’t an administrative annoyance; it’s a critical Event of Default that could freeze your facility.
What you need to do: Build a strict 21-day internal calendar for all post-closing steps. The reality is that these filings should be handled by the bank and their counsel, but as a borrower, you should double-check the progress. If the bank or their counsel fails to make a statutory filing, it is your facility that gets frozen.
5. Further Assurance Clauses: What They Actually Do
At the back of every facility agreement is a “Further Assurance” clause. Most borrowers ignore it because it looks like standard boilerplate.
Bank legal teams use this clause as a tool to fix execution defects or address gaps discovered during post-closing audits. For instance, if a signature was missed on a security document, a registry rejected a filing due to a typo, or a newly formed subsidiary is required to join the facility under an agreed "Guarantor Coverage" test, the bank will invoke Further Assurance to force you to execute new documents to rectify it.
What you need to do: The clause itself is standard and not unreasonable. However, ensure your legal counsel reviews it so that it strictly applies to perfecting the specifically agreed security package, ensuring it cannot be misinterpreted as a mechanism for the bank to overreach later.
Treat Execution Like the Deal
The execution and post-closing phases are where the bank secures its leverage. Navigating them successfully requires understanding bank guardrails, not just negotiating the term sheet.
Treat the signing of the term sheet as the starting gun, not the finish line. Understand the machinery, check every box, and you’ll protect your operational flexibility and maintain a healthy standing with your lender.
Disclaimer: This post is a personal reflection and does not constitute legal advice. Every situation is different — if you need legal advice, email me at [email protected].