Bank Trims a Debt Commitment Weeks Before an M&A Closing

The situation

Kajan, a police sergeant, and his spouse Nirosha, an accountant, had spent over a decade building a small holding company on the side, buying minority stakes in a handful of Ontario businesses as their savings allowed. Their biggest move yet was a signed share purchase agreement to acquire a mid-size Hamilton manufacturer for roughly $38 million, a company they had followed for years and finally convinced its founder, Sana, to sell as she moved toward retirement.

The deal was structured the way most transactions of this size are: a mix of debt and equity. Their holding company would contribute about $11 million in equity, drawn from years of retained earnings and a co-investment from a family trust, and a Canadian bank would provide a senior term loan of about $27 million secured against the target's assets and cash flow. The bank had issued a signed commitment letter, the purchase agreement was fully negotiated, and a closing date sat about six weeks out. Our firm had been retained to run the legal side of the acquisition: due diligence review, the definitive agreement, and closing mechanics.

Everything moved on schedule until the lender's credit team came back for a final review ahead of funding.

The financing gap

Three weeks before closing, the bank's credit committee revisited its underwriting on the target's cash flow, applying a more conservative stress test to account for rising interest rates and softer demand in the manufacturer's sector. The result was a revised commitment: the bank would still lend, but only about $20 million, roughly $7 million less than the amount in the original commitment letter.

This is a financing condition problem, not a contract problem. Most acquisition agreements of this size make the buyer's obligation to close conditional on securing financing on acceptable terms, but that condition protects the buyer from being forced to close without money in hand; it does not obligate the seller to wait indefinitely, and it does not conjure the missing $7 million out of nowhere. Sana had her own timeline. She had already signed an agreement of purchase and sale on a retirement property that assumed the sale would close on schedule, and the purchase agreement gave her the right to walk away and pursue other buyers if the deal did not close by the outside date.

A debt commitment letter is not a guarantee of funding. It is the lender's conditional promise, and lenders reserve the right to revisit their own numbers right up until the loan actually advances, particularly when a deal is large enough that the credit committee reviews it more than once. Buyers who treat a signed commitment letter as certain financing are often surprised at exactly this stage: after due diligence is done, after the seller has stopped looking at other offers, and with only weeks left before the closing date arrives.

Kajan and Nirosha now faced a real choice. They could try to renegotiate the purchase price down to match the reduced debt capacity, which risked losing the deal entirely if Sana refused a late repricing after months of negotiation. They could walk away and lose the deposit and months of diligence costs. Or they could find another $7 million from somewhere else, fast, without reopening the entire deal.

What we did

1. Confirmed what the purchase agreement actually required. We reviewed the financing condition and the outside closing date carefully. The agreement gave Kajan and Nirosha's company a defined window to satisfy the condition or walk away with their deposit returned, but it did not extend automatically, and it did not obligate Sana to accept a lower price. Understanding the exact mechanics of that clause shaped every option that followed.
2. Went to Sana's side early, not at the deadline. Rather than waiting to see if the gap could be closed quietly, we recommended disclosing the shortfall to Sana's side within days of learning about it. Sellers in this position generally have two real options: walk away and relist the business, which costs them months, or help structure a solution that keeps their sale alive. Early, honest disclosure gave Sana's advisors time to consider the second option instead of reacting defensively to a late surprise.
3. Negotiated a vendor take-back note. We proposed that Sana finance part of the shortfall herself, taking a note for about $5 million secured against the business, repayable with interest over a period after closing rather than paid in cash on day one. This is a common bridge in Ontario private company transactions when a lender pulls back: the seller effectively becomes a secondary lender, motivated to help the deal close because she remains repaid out of the business's future performance rather than losing the sale outright. We drafted the note and its security terms alongside the closing documents, on a timeline that did not slow the rest of the transaction.
4. Helped the buyer close the remaining gap with additional equity. A $5 million vendor note against a $7 million shortfall still left about $2 million unaccounted for. Kajan and Nirosha's family trust agreed to increase its equity contribution, bringing total equity from roughly $11 million to about $13 million. We reviewed the trust's contribution documentation and updated the holding company's capitalization records to reflect the larger equity stake accurately, which mattered for both the bank's revised loan terms and future tax reporting.
5. Went back to the bank with a revised capital stack. With the vendor note and increased equity in hand, we worked with the buyer's financial advisors to present the lender with a complete, credible financing structure: about $20 million in senior debt, $5 million in vendor financing, and $13 million in equity, totaling the original $38 million purchase price. Lenders are generally more comfortable when a shortfall is closed with real, committed capital rather than a request to simply advance more money, and the bank confirmed its reduced commitment would proceed on that basis.
6. Repapered the closing documents on a tight schedule. The purchase agreement, the new vendor take-back note, the security registration protecting Sana's note, and the bank's updated loan documents all needed to be finalized and signed within the two weeks remaining before the outside closing date. We coordinated directly with the lender's counsel and Sana's advisors to keep every document moving in parallel rather than in sequence, which is usually the only way to hold an original closing date once a financing structure has to be rebuilt mid-deal.

The outcome

The transaction closed on the original date, six weeks after the purchase agreement was signed and roughly three weeks after the bank's revised commitment first threatened to derail it. Kajan and Nirosha's holding company completed the acquisition for the full $38 million, funded by about $20 million in senior debt, a $5 million vendor take-back note to Sana, and $13 million in equity from the family holding company and trust.

Sana left the closing with a secured note earning interest on part of her sale proceeds instead of a collapsed deal and a business back on the market. For Kajan and Nirosha, the acquisition proceeded without a price renegotiation, without losing their deposit, and without the months of delay a failed closing and a second buyer search would have cost. The vendor take-back note is scheduled to be repaid over several years out of the manufacturer's ongoing cash flow, a structure both sides agreed to well before the pressure of a looming deadline could force a worse outcome.

The deal held together because the financing gap was treated as a solvable structuring problem the moment it appeared, rather than a reason to panic or to quietly hope the lender would change its mind again before closing.

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