Acts of God, Acts of AI: Is Artificial Intelligence Becoming a Force Majeure Event in Commercial Lending?

Artificial intelligence is changing how businesses operate, compete, and generate revenue. Now, it may also be changing how borrowers negotiate their loan documents.

Force majeure provisions have traditionally addressed extraordinary events beyond a party’s control, such as natural disasters, wars, or pandemics. But should a borrower be entitled to relief from its loan obligations when AI disrupts its business?

According to an October 27, 2026, Bloomberg report, private equity sponsors have begun negotiating provisions that provide relief from certain defaults caused by AI disruption. H.I.G. Capital reportedly secured such language in a €470 million financing supporting its acquisition of Terras Group, a German infrastructure engineering company.

The provisions reportedly allow the borrower to delay consequences of certain payment defaults and adjust earnings calculations for AI-related impacts. Similar language was proposed but ultimately rejected by lenders in Bain Capital’s financing of Everllence.

While these provisions are appearing in large private equity transactions, the issues extend well beyond leveraged buyouts.

When Does Business Risk Become Force Majeure?

Force majeure provisions generally excuse or delay contractual performance when extraordinary circumstances interfere with a party’s ability to perform. Whether they apply depends on the contract and governing law. Payment obligations, however, are not ordinarily excused without express language.

Unlike a hurricane or other temporary event, AI disruption may not have a clear beginning or end. Its effects could be ongoing, making it difficult to determine when a borrower should qualify for relief and when its obligations should resume.

Middle-Market and Commercial Lending

Commercial lenders already consider technological risks when evaluating a borrower’s cash flow, operations, and collateral. AI-related force majeure provisions could shift some of that risk back to lenders after closing.

A borrower facing declining revenue from AI competition might seek relief from financial covenants or payment defaults, even as its financial condition worsens. Lenders should consider whether agreeing to such provisions changes the credit risk they originally agreed to take.

Entertainment and Music Lending

Entertainment lending presents an interesting example because loans secured by music catalogs, royalties, copyrights, and other intellectual property often depend on projected future revenue.

AI-generated music and changes in licensing and distribution could affect royalty income and, in turn, the value of the lender’s collateral. If AI contributes to a decline in royalties, should the borrower be entitled to relief under its loan documents?

For lenders financing music and other intellectual property assets, the concern is that AI disruption could simultaneously affect the borrower’s ability to repay and the value of the collateral securing the loan.

SBA and Small Business Lending

AI disruption also raises questions for small business lenders, particularly those financing acquisitions through the SBA 7(a) Loan Program.

These loans often rely on historical earnings to establish a business’s ability to repay. But what happens when AI changes the economics of the acquired business? A service-based company with a strong earnings history could face declining demand as customers turn to AI alternatives.

SBA lenders also have additional considerations. Any provision affecting repayment obligations, defaults, or lender remedies would need to comply with applicable SBA requirements and protect the SBA guaranty. While AI-related force majeure provisions may not become common in SBA lending, the potential impact of AI on a business’s future earnings is already worth considering during underwriting.

What Should Lenders Be Considering?

Lenders do not necessarily need to reject every proposed accommodation for AI disruption. However, before agreeing to such provisions, they should consider:

• What qualifies as AI disruption? Would it require an actual interruption in operations or simply a decline in revenue?
• How is causation established? How does a borrower prove that AI, rather than other business conditions, caused the problem?
• How long does relief last? Unlike a natural disaster, AI disruption may not have a clear end date.
• Which obligations are affected? Relief from a financial covenant is different from relief from a payment default.
• Can earnings be adjusted? AI-related EBITDA adjustments could mask actual declines in cash flow.

These distinctions matter, particularly when a lender’s collateral value may also be declining.

Looking Ahead

Whether AI-related force majeure provisions become more common remains to be seen. But the underlying concern is not new. Lenders have always faced the risk that technology, competition, or changing markets could make a borrower’s business less profitable.

What is new is the possibility that borrowers may seek contractual relief from those risks. As these provisions begin appearing in loan negotiations, lenders will need to decide whether AI disruption warrants special treatment or remains part of the ordinary business risk they agreed to finance.

Source: Bloomberg, “Private Equity Wants a Debt Escape Clause for AI Disruption,” October 27, 2026.

Mary Lu Noah is a Nashville-based attorney with Stites & Harbison PLLC whose practice focuses on commercial lending, SBA 7(a) and 504 financing, entertainment and music industry lending, and commercial real estate finance. She represents lenders in a wide range of financing transactions, including business acquisitions, royalty-backed lending, and real estate secured loans.