Yes — but usually not immediately. The bank has the right to call the loan. Most Danish loan agreements contain an acceleration clause — a provision that gives the bank the right to declare the entire loan due for immediate repayment if a covenant is breached. In practice, however, this rarely happens on first breach.
In practice, a loan call is uncommon. Here's when banks actually use it.
Why does the bank rarely call the loan on first breach?
Calling the loan is expensive for the bank. A call typically means:
- The company cannot pay the full amount immediately
- The bank must initiate collateral realization
- Collateral rarely provides full coverage
- The bank often ends up taking a loss
The bank therefore has an economic interest in finding a pragmatic solution — as long as the company can still repay the loan over time.
What does the bank typically choose instead?
- Waiver: A written dispensation for a fee. The breach is 'forgiven' for a period.
- Renegotiation: New covenants, higher interest rate, additional collateral. The agreement is adjusted.
- Forbearance: The bank formally refrains from reacting to the breach for a limited period in exchange for increased monitoring.
- Restructuring: The loan is restructured — typically with longer maturity, different terms, or partial conversion.
Reality: Most technical covenant breaches in Denmark are resolved through waiver or renegotiation. Formal loan calls represent a small proportion.
So when does the bank call the loan?
Typically when one or more of these conditions are present:
- Repeated breaches: The same covenant is breached again and again with no sign of improvement.
- Lack of cooperation: Management is opaque, surprises the bank, or has dishonest numbers.
- Broken promises: Previous plans have not been followed.
- Liquidity problems: The risk of non-payment is real.
- Insufficient collateral: The bank risks larger losses the longer they wait.
- Regulation: The bank's own regulator presses for write-downs if the loan deteriorates.
A worked example: repeated breach without mitigation
A mid-sized manufacturing company with a DKK 25 million loan breaches its equity ratio covenant in Q2 2024. The bank issues a waiver for three months in exchange for a fee of DKK 75,000 and a commitment to restore the ratio by Q3.
In Q3, the company breaches again — this time by a larger margin. Management had not implemented the cost-cutting plan promised in the waiver application. The bank now asks for additional collateral. The company cannot provide it.
In Q4, the breach worsens. The bank calls the loan. The company enters restructuring negotiations with its creditors. The bank realizes 60% of the loan value through collateral sale and takes a write-down on the remainder.
The trigger: Not the first breach, but the pattern of non-cooperation and broken promises.
The honest test
Three questions to assess your own risk:
- Have you breached the same covenant more than once in the past 12 months?
- Did you miss a deadline or commitment you gave the bank in a previous waiver or renegotiation?
- Are you surprised by the bank's concern — or do you understand why they are worried?
If you answered yes to two or more: your risk of escalation is real. Time to act.
How do you reduce the risk of the loan being called?
- Be first: Discover the breach before the bank and reach out proactively.
- Come with a plan: Not an excuse — a mitigation plan to get back under the covenant threshold.
- Be realistic: Don't overpromise. Better a conservative plan you can keep.
- Document: Show that you understand the numbers, have monitored the development, and have acted.
- Maintain dialogue: The bank does not respond to silence with kindness.