Challenging loan acceleration: Bank creditworthiness duties in business loans

JUDr. Jakub Dohnal, Ph.D., LL.M.
JUDr. Jakub Dohnal, Ph.D., LL.M.
22.5.2026 | ARROWS law firm

Business loans are a common financing tool for companies, but once a loan falls into arrears or is accelerated, a fundamental legal and commercial game often begins. This article clearly explains when and how you, as an entrepreneur, can argue that the bank failed to properly assess your ability to repay, and how the regime differs between consumer and business loans.

The photo shows a specialist providing a consultation on the defence against acceleration of a loan.

Legal framework for business loans and the difference compared to consumer credit

A business loan under Czech law is essentially a private-law credit agreement concluded between a bank or other lender and an entrepreneur, the purpose of which is to finance business activities. The basic contractual framework is provided by the Civil Code through the credit agreement (Sections 2390 to 2394 of Act No. 89/2012 Coll., the Civil Code, as amended) and the loan for use (Sections 2390 to 2391 of the Civil Code).

Specific public-law regulation primarily applies to the credit providers themselves—banks and non-bank providers—through the Consumer Credit Act, the Banking Act, and sector-specific regulations. From the entrepreneur’s perspective, it is important that, as of today, purely business loans are not subject to such a comprehensive “protective” regulation as Act No. 257/2016 Coll., on Consumer Credit. This act regulates in detail the obligations of lenders towards consumers. If a dispute concerns whether the bank acted with professional care in managing credit risk, it may be appropriate to address the matter through commercial and litigation disputes.

However, this does not mean that a bank can dispense with professional care when assessing risk in a business loan. On the contrary, the duty of prudent business conduct and credit risk management is at the core of banking regulation and may also play a significant role in civil litigation.

The key difference between consumer credit and a business loan is the borrower’s status. A consumer is a natural person who, when entering into the agreement, is not acting within the scope of their business activity or profession. If a natural person acts as an entrepreneur, takes out the loan under their business ID number (IČO), and declares a business purpose, consumer protection generally does not apply to that relationship.

It is precisely at this boundary that many disputes arise. The Czech National Bank has repeatedly warned that arranging consumer credit “through” a business contract is highly risky for the client—both in terms of losing consumer protection and in terms of potential criminal-law consequences if the loan purpose is misrepresented. A practical discussion of how disputes arise when contractual expectations break down can be found in When a Business Partner Breaks the Deal: What Czech Law Can (and Can’t) Do. 

At the same time, case law and legal scholarship emphasize that consumer status is assessed materially—i.e., according to the real purpose and circumstances, not merely the wording of the contract.

In some cases, a so-called “business” loan may therefore be reclassified as consumer credit, with all consequences for the bank’s liability. The Consumer Credit Act defines consumer credit as deferred payment, a monetary loan for use, credit, or a similar financial service provided or intermediated to a consumer. The practical impact on corporate financing (including the price of credit) is also well illustrated by the related text Interest rates and corporate financing: How central bank decisions affect corporate loans and investments. 

At the same time, it exhaustively defines the range of licensed entities that are permitted, as entrepreneurs, to provide consumer credit, and entrusts the Czech National Bank with supervision over their activities. For matters relating to CNB supervision, licensing, and regulatory requirements for credit providers, legal advice in the area of CNB licences and investments can help.

By contrast, loans genuinely intended exclusively for business purposes generally fall outside the scope of this regulation. Therefore, they are not subject, for example, to explicit rules on transparency and creditworthiness assessment, nor to binding limits on penalties or the lender’s “forbearance” obligations towards a borrower in default, which European legislation requires for consumer credit. 

In practice, it is crucial for entrepreneurs, already at the time of negotiating the loan, to know under which regime they are entering into the agreement, because this will affect their options for defence and the bank’s potential liability in any future dispute. Where the loan is tied to broader group financing, governance or intercompany arrangements, it can be useful to review the structure under Corporate & Holding services in the Czech Republic.

An important element of the banking environment is also the concept of a “bank” as a regulated entity. The Czech legal system defines a bank as a joint-stock company with its registered office in the Czech Republic that accepts deposits from the public and provides loans, and that requires a banking licence to carry out these activities under Act No. 21/1992 Coll., on Banks, as amended.

Banks are therefore subject not only to general private-law rules, but also to strict public-law regulation and supervision by the Czech National Bank. The CNB also supervises the quality of their management and control systems, including credit risk management. It is precisely here that the legal argument arises that a manifestly inadequate assessment of repayment ability in a business loan may constitute not only a breach of regulatory rules, but, in certain circumstances, also a breach of professional care with potential civil-law consequences. If, in practice, management liability and related claims for damages are being addressed, it may be useful to add context with the article Have you received a demand for compensation for damage due to a breach of the duty of due managerial care?.

From a practical perspective, it is advisable to view a business loan not only as an agreement on the provision of funds, but as a comprehensive package of obligations, security, representations and covenants that will often accompany the company for many years. The basic substance of the agreement is simple: the lender (the bank) undertakes to provide funds in a certain amount, and the borrower (the entrepreneur) undertakes to repay those funds and pay interest. 

However, this framework is supplemented by detailed drawdown conditions, reporting obligations, restrictions on further indebtedness or disposal of assets, security instruments and acceleration clauses, the breach of which may lead to the immediate maturity of the entire loan. In disputes concerning a bank’s liability for an incorrect assessment of repayment capacity, the issue is therefore not limited to the “approval of the loan” in isolation, but concerns the entire credit relationship, including how the bank responded to the debtor’s difficulties and how it enforced its claims.

The bank’s obligation to assess creditworthiness: where it arises and what it means

Consumer loans as a model of “responsible lending”

A direct, statutory obligation to assess creditworthiness appears in Czech law primarily in the area of consumer credit. The Consumer Credit Act (Act No. 257/2016 Coll.) imposes on the provider an obligation, before concluding the agreement, to assess the consumer’s creditworthiness on the basis of necessary, reliable, sufficient and proportionate information. This information must be obtained from the consumer and, where necessary, also from the relevant databases and other sources.

The provider may then grant the credit only if the assessment shows that there are no reasonable doubts about the consumer’s ability to repay the credit. This obligation transposes European consumer credit directives; as of 20 November 2026, the new Directive (EU) 2023/2225 (CCD2) will be fully applicable, further tightening and harmonising the rules for assessing creditworthiness across EU Member States. It is further elaborated in interpretative documents of European bodies, for example in the guidelines of the European Banking Authority (EBA).

Legal commentary and the decision-making practice of the Financial Arbitrator emphasise that assessing creditworthiness is not a formality, but a process in which the provider must be able to demonstrate ex post what data it obtained, how it verified it, and what conclusions it drew from it. 

The basic elements of a serious assessment include, in particular, verifying the amount and stability of income, analysing existing obligations, assessing ordinary living costs, and taking into account possible future adverse scenarios. These may include a decline in income, retirement, or an increase in interest rates.

Financial institutions should use transparent and documented methodologies, update them regularly, and keep records of how they were applied in individual cases. This is crucial also from an evidentiary perspective—the burden of assertion and the burden of proof regarding a proper assessment of creditworthiness lies primarily with the credit provider (Section 90(2) of the Consumer Credit Act).

The purpose of the obligation to assess creditworthiness is not to “protect the bank from itself”, but above all to protect the consumer and society as a whole from excessive indebtedness. If loans are granted to people who clearly have no realistic chance of repaying them, the costs of such irresponsible lending policy are shifted to public budgets, the social assistance system, and other creditors. 

This logic leads to the expectation that high-quality creditworthiness assessment—although formulated primarily for consumers—will increasingly permeate the entire credit market, including the business loan segment, and become a benchmark of professional care.

The Constitutional Court and the Supreme Court: pressure for a “convincing examination” of repayment ability

In recent years, the case law of the highest courts has clearly strengthened the emphasis on responsible lending and a convincing examination of repayment ability. In its decisions, the Constitutional Court has expressly stated that courts should lead credit providers to convincingly examine whether the future debtor will not have an obvious problem repaying the loan. 

At the same time, it emphasised that, in assessing whether a credit agreement is consistent with good morals, it is necessary to examine the specific circumstances of its conclusion, including the debtor’s situation and the manner in which the creditor approached the granting of the loan.

Although this reasoning concerned consumer credit, its implications are broader—it sets a standard of responsible conduct for a professional lender that cannot be entirely ignored even in a business context. 

The case law of the Supreme Court follows a similar line, addressing creditors’ liability for granting loans without an adequate assessment of repayment ability. The courts have repeatedly concluded that a creditor should grant a loan only if, with professional care, it has sufficiently assessed the consumer’s ability to repay.

A mere check of credit registers is not sufficient. It is necessary to verify income data, compare living costs with publicly available data, and realistically assess whether the debtor can manage the loan. This approach underlines that the standard of “professional care” is not an empty concept, but includes specific steps and verification. Although these are primarily consumer cases, from the perspective of banking practice this represents a general quality threshold for credit risk assessment.

From the perspective of entrepreneurs, it is important that courts are beginning to reflect more strongly the information asymmetry between the bank and the debtor. The bank has sophisticated credit risk management models, access to registers, and a professional apparatus for data analysis. The debtor—even if an entrepreneur—often relies on the fact that if the bank granted the loan, it considers the debtor’s situation manageable. 

Where it is apparent that the bank ignored warning signals or failed to carry out basic verification, this opens space for arguments that it breached its duty of professional care. This may play a role in moderating the sanctions claimed or in assessing the validity of certain arrangements.

Creditworthiness assessment in the business segment: law and regulation

Unlike consumer credit, the Czech legal system does not expressly regulate how a bank should assess the “creditworthiness” of a business debtor. However, the duty of prudent business conduct and credit risk management follows from banking regulation and the supervision of the Czech National Bank (ČNB), specifically from the Banks Act and related decrees and CNB guidelines. Banks must have internal rules in place for granting loans and for identifying, measuring, mitigating and monitoring credit risk.

These rules must correspond to the nature and scope of their activities. In practice, this means a systematic analysis of the client’s financial situation, assessment of creditworthiness, cash flow, collateral, risk concentration and other factors described in standard credit risk management methodologies. 

From a legal perspective, it is important that this internal methodology is not merely a “private matter of the bank”, but in the event of a dispute it may be assessed as to whether it meets the standard of professional care.

If a bank were to systematically grant loans without basic verification, without taking into account available information about the client’s deteriorating situation, it would be possible to argue a breach of the duty of prevention (§ 2910 of the Civil Code) and the professional standard applicable to a professional (§ 5(1) of the Civil Code).

In its supervisory activities, the Czech National Bank also monitors the quality of credit risk assessment and may impose sanctions for breaches of obligations, including obligations arising under the Consumer Credit Act where applicable. 

In the area of consumer financing, there is already a number of final decisions sanctioning providers for granting loans without proper assessment of creditworthiness or without the required authorisations. Although these decisions do not directly concern business loans, they create a framework of regulatory expectations as to what responsible risk assessment in the financial market should look like.

From an entrepreneur’s perspective, the quality of the creditworthiness assessment has a dual significance. On the one hand, it prevents a company from obtaining a loan in an amount and on terms it cannot manage, which may lead to insolvency issues and management liability. On the other hand, in the event of a dispute it may serve as an argument that the bank acted contrary to professional care if it granted the loan in a situation where it had to know or should have known that the debtor would not be able to realistically meet its obligations.

It is precisely the balancing of these two perspectives—responsible lending and the entrepreneur’s autonomy—that is often a key topic in court disputes, with which the lawyers at ARROWS advokátní kancelář assist clients.

Consequences of poor assessment of the ability to repay: consumer vs. entrepreneur

Consequences for consumer loans: invalidity, limitation of claims, and regulatory sanctions

For consumer loans, the consequences of an incorrect assessment of creditworthiness are described in relatively detailed terms in the Consumer Credit Act and in case law. If the provider does not assess creditworthiness at all, or assesses it inadequately, it breaches one of its key statutory obligations (§ 86 of the Consumer Credit Act). 

Although the Act does not explicitly provide for the automatic invalidity of the entire agreement, § 87 stipulates that in such a case the consumer credit is deemed interest-free and free of fees, and the consumer pays only the principal.

In addition, the combination of civil-law principles, case law, and European requirements leads to such agreements very often being found contrary to good morals, and thus falling under the regime of relative invalidity of certain provisions. 

Both the Constitutional Court and the Supreme Court emphasise that, when assessing whether a loan is consistent with good morals, it is necessary to take into account the specific circumstances— the level of interest and fees, the debtor’s financial situation, the extent and manner of the creditworthiness assessment, and the provider’s overall business model.

As of 20 November 2026, the new European Consumer Credit Directive (EU) 2023/2225 (CCD2), transposed into the Czech legal system, will be fully applicable; it will further strengthen creditworthiness assessment with an emphasis on the consumer’s actual ability to repay, rather than on the provider’s formal compliance with its obligations. It remains the case that if a consumer obtains a loan that they objectively cannot repay, such a loan will, with a high degree of probability, be assessed as interest-free and free of fees, and the consumer will be obliged to pay only the principal.

Case-law practice concerning conflicts with good morals in relation to excessive loan costs also continues. The case law in this area has concluded that interest exceeding approximately three times bank lending rates (i.e., roughly above 50% p.a.) is, as a rule, acceptable only exceptionally. 

Rates around four times and more (around 70–80% p.a.) already, in the vast majority of cases, constitute a conflict with good morals and result in the invalidity of the interest for usury. Although this new legislation primarily strengthens consumer protection, it signals the direction in which debtor protection and creditor responsibility in the Czech Republic are heading.

In addition to civil-law consequences, there are also significant public-law sanctions. Granting a consumer loan without proper assessment of creditworthiness is an administrative offence under the Consumer Credit Act, for which the Czech National Bank may impose a fine of up to CZK 20,000,000 (§ 149(1)(f) of the Consumer Credit Act). The CNB may also impose remedial measures, restrict the provider’s activities, or, in extreme cases, revoke the licence. These decisions are often published, which also has a reputational impact on the financial institution.

In practice, this means that lenders are incentivised to comply with their obligations not only due to the risk of court findings of invalidity or limitations of claims against debtors, but also due to regulatory pressure. 

For a debtor who has run into repayment difficulties with a consumer loan, arguing poor assessment of creditworthiness may represent a crucial line of defence. If it can be proven that the loan provider knowingly ignored obvious signs of over-indebtedness or did not verify basic information, this may lead to a significant reduction of the debtor’s obligation, or to the invalidity of part of the agreement.

In typical situations, clients together with the lawyers at ARROWS advokátní kancelář examine in particular the documentation for the creditworthiness assessment, internal scoring, records of communication with the intermediary, and, where relevant, decisions of the Financial Arbiter or sanction decisions of the Czech National Bank against the given provider.

Business loans: when poor assessment of creditworthiness may affect the bank’s claims

For business loans, there is no equally clear rule that a poor assessment of the ability to repay would automatically lead to invalidity of the agreement or to a limitation of the bank’s claims. 

Nevertheless, there are scenarios in which an inadequate assessment of creditworthiness may play a significant role. The basic starting point is that an entrepreneur is generally regarded as a professional who bears responsibility for their own business decisions, including the decision to incur debt for the company.

At the same time, the bank, as a specialised financial intermediary, acts in the course of its business and has a duty to act with professional care, which the Civil Code (§ 5(1)) associates with increased liability of professionals. The first typical scenario is a situation where a formally “business” loan in fact has a consumer character.

The Czech National Bank points to the practice of arranging consumer loans as business loans so that the provider can circumvent stricter rules, for example limits on penalties, mandatory information, or the prohibition of arbitration clauses for consumers. However, if the true purpose of the loan is not connected with business activity but with personal consumption, a court or the Financial Arbiter may conclude that it is a so-called disguised consumer loan and apply consumer protection to it.

In such a case, the bank’s liability for an incorrect assessment of creditworthiness is governed by the same regime as for consumers – including the possible limitation of claims for interest and fees or the invalidity of certain contractual provisions. 

The second scenario is a situation where the bank provides an entrepreneur with repeated refinancing, increases credit limits, or restructures the repayment schedule, even though it has information about the debtor’s deteriorating financial situation.

The Consumer Credit Act expressly provides that, in the event of a significant increase in the total amount of credit, the lender must reassess the consumer’s creditworthiness (Section 86(3)). There is no such rule for business credit, but from the perspective of professional care, a similar approach can be expected – especially where refinancing serves to “patch” a lack of liquidity without any realistic chance of recovery. 

In extreme cases, such conduct by the bank may be assessed as contributory fault in the occurrence of damage or as a breach of the duty of prevention (Section 2910 of the Civil Code), which may be reflected in the moderation of contractual penalties or default interest (Section 1800(2) of the Civil Code).

The third scenario is a combination of an incorrect assessment of creditworthiness with other problematic elements of the agreement, for example excessive interest, non-transparent fees, or unbalanced acceleration provisions. Courts and legal literature alike point out that assessing whether an agreement complies with good morals is complex. If a bank grants a loan to a company that is objectively in a very poor situation, sets draconian sanctions, and at the same time does not actively seek to address the problems that arise, this may lead to a conclusion that certain provisions are invalid (Section 588 of the Civil Code) or to a reduction of the sanctions claimed.

From the perspective of ARROWS, a Prague-based law firm, it is therefore always necessary to analyse not only the initial phase of granting the loan, but the entire course of the relationship between the bank and the debtor. 

The fourth scenario is the bank’s liability for damage caused by a breach of statutory or contractual obligations. The general rules on liability for damage under the Civil Code (Section 2910 et seq.) assume that a tortfeasor who, through their own fault, breaches a duty imposed by law and thereby interferes with an absolute right of the injured party must compensate the damage.

However, the Supreme Court has repeatedly held that funds in a bank account are the bank’s property and the client has only a claim against the bank, which complicates the assertion of claims based on interference with “ownership rights” to the account balance. Nevertheless, claims for breach of contractual obligations or the duty of prevention cannot be ruled out if, for example, the bank fails to provide important information, does not fulfil its obligations in connection with drawdown, or proceeds with enforcement of security in breach of the agreement and the law.

From an entrepreneur’s perspective, it is therefore crucial to understand that the argument “the bank should not have lent to me” will usually not be sufficient on its own. It is necessary to show specifically how the creditworthiness assessment was inadequate, what information the bank had available, what followed from it, and how the situation would have developed if the bank had acted with due professional care. Putting together this narrative and an evidence strategy is precisely a typical task for the attorneys of ARROWS, a Prague-based law firm, in cooperation with economic and financial advisers.

Most common questions about the difference between consumer and business credit

  1. How do I know whether consumer protection applies to my loan?Answer: The basic criterion is your status and the purpose of the loan – if you are a natural person and the loan is not used predominantly for business purposes, it will typically be a consumer loan, regardless of whether you stated a company ID number (IČO) when signing. If you are unsure, it makes sense to have the agreement reviewed, because incorrect classification can significantly affect your defence options; our attorneys in Prague at ARROWS can assist with this type of assessment after you contact us at office@arws.cz.
  2. Can a business loan be assessed as a disguised consumer loan?Answer: Yes, especially if the true purpose of the loan is not related to business and the “business” form was chosen only to circumvent consumer regulation. In such a situation, in proceedings before a court or the Financial Arbitrator, it can be argued that the Consumer Credit Act should apply with all consequences for the bank’s liability; the attorneys of ARROWS, a Prague-based law firm, will discuss an appropriate strategy with you after you send the documents to office@arws.cz.
  3. In a purely business loan, does the bank have a duty to assess creditworthiness as strictly as for a consumer?Answer: The law does not expressly impose this duty in that form, but banks must manage credit risk prudently and their professional care (Section 5(1) of the Civil Code) is, in practice, also assessed by reference to standards developed for consumer credit. In a specific dispute, it then becomes a matter of evidence whether the bank acted professionally in the given case or whether it was a gross underestimation of risk on which legal argumentation can be built; ARROWS, a Prague-based law firm, can help you evaluate your situation if you contact us at office@arws.cz.

Typical disputes arising from business loans and the role of creditworthiness assessment

Acceleration of the loan and the debtor’s defence

Acceleration of a loan is the moment when the bank declares the entire outstanding loan to be due at once, usually due to a material breach of the agreement by the debtor. The contractual documentation typically contains a list of so-called “events of default”, i.e., events that may lead to acceleration. These include, for example, late repayment, breach of financial covenants, a change of control in the company, or the commencement of insolvency proceedings.

From a legal perspective, acceleration involves two levels: whether the factual circumstances contemplated by the clause have occurred, and whether the clause in question is valid and enforceable, in particular from the perspective of proportionality and compliance with good morals. 

The argument of an incorrect assessment of creditworthiness comes into play when the debtor is in default but claims that the bank should never have provided the loan in that scope, because it must have seen that the company would objectively not be able to repay it.

In a purely business context, this argument is usually weaker on its own, because an entrepreneur bears their own business risk. However, in combination with other factors – for example, excessive sanctions, unclear information about the terms, or the bank repeatedly increasing the loan despite clear signs of over-indebtedness – it may lead to the conclusion that the sanctions claimed by the bank are disproportionate and contrary to good morals (Section 588 of the Civil Code and Section 1800(2) of the Civil Code, allowing moderation of contractual penalties).

In practice, court proceedings often examine not only the text of the agreement, but also the course of cooperation: how the bank responded to the first repayment problems, whether it offered restructuring or merely harshly enforced acceleration, how it communicated about risks, and how it handled the security.

The debtor may argue, for example, that the acceleration was declared in breach of the contract, that the bank misused the acceleration clause, or that the contractual default interest and penalties claimed are disproportionate in light of the specific circumstances. The argument of an incorrect assessment of creditworthiness then serves as one piece of the mosaic showing that the bank itself contributed to the unsustainable situation.

Practical experience shows that a well-prepared defence by the debtor against acceleration and subsequent enforcement can lead not only to procedural successes in court, but often also to a negotiated out-of-court settlement. 

The attorneys of ARROWS, a Prague-based law firm, in such cases combine legal arguments with knowledge of banking practice and economic analysis to create a convincing picture for the court and for the counterparty in settlement negotiations.

Refinancing and restructuring: when the bank’s duty to “look ahead” increases even further

Refinancing or restructuring of a business loan has become a common part of corporate financing. At the moment when a loan runs up against maturity limits, instalment amounts or covenants, banks often proceed to amend the terms, change the repayment schedule, increase the principal, or provide a new loan to repay the old one.

From a business perspective, this may be desirable for both parties – the debtor gains time, the bank retains the client and often also improves the collateral. Legally, however, it is precisely this phase that brings increased requirements for assessing the ability to repay. 

For consumer loans, the law expressly provides that before an amendment of the obligation consisting in a significant increase in the total amount of the loan, the lender must reassess the consumer’s creditworthiness (Section 86(3) of the Consumer Credit Act).

Although this rule is not directly binding for business loans, a similar approach can be expected from the perspective of the bank’s professional care. This is especially true if refinancing serves to “patch” a lack of liquidity without a real chance of recovery. In extreme cases, the risk increases that the bank’s approach will be assessed as irresponsible lending, particularly if refinancing merely postpones inevitable insolvency.

Situations are particularly sensitive where restructuring is linked to a tightening of collateral – for example, converting an originally unsecured loan into a loan secured by real estate, shareholders’ guarantees, or a blank promissory note. 

In such cases, the debtor’s argument in a future dispute may be based on the fact that the bank took advantage of the debtor’s weak negotiating position to secure a better position for itself without genuinely addressing the sustainability of the financing. If it is proven that already at the time of restructuring it was apparent that the company would not be able to repay the loan, the court may, when assessing the proportionality of the collateral, contractual penalties or interest, also take into account the degree of the bank’s professional responsibility.

For entrepreneurs, it is therefore important that even in a difficult situation they do not succumb to the impression that “the bank is always right” and that they must accept any proposed solution without discussion. An expert legal and economic review of the proposed restructuring may reveal whether it is a genuine recovery of the financing, or merely postponing the problem at the cost of a dramatic deterioration of the debtor’s position and that of its owners. 

The attorneys of ARROWS, a Prague-based law firm, help clients in such situations negotiate terms that are sustainable in the long term while also minimising the risk of future disputes.

Collateral and personal guarantees: the impacts of an incorrect assessment of creditworthiness

Business loans are typically secured by a combination of pledges (real estate, movable assets, receivables), guarantees by shareholders or management, promissory notes, or bank guarantees. Collateral in itself does not change the bank’s duty to responsibly assess the ability to repay – on the contrary, it should be only the second line of protection after assessing creditworthiness. 

However, in practice it is precisely the enforcement of collateral that tends to be the most visible and most painful consequence of a loan default, and disputes therefore concentrate around it. The situation is particularly complicated where a natural person guarantees a business loan – typically a managing director, shareholder, or another member of the company’s management. 

Case law indicates that a natural person with close professional or business ties to the company cannot be regarded as a consumer if they provide security for that company’s obligations; they are therefore not protected as an ordinary consumer. This means that a guarantor or a bill-of-exchange surety cannot simply argue a breach of the rules for consumer credit.

Nevertheless, it may still matter how the bank assessed the ability to repay at the moment it required a personal guarantee – especially if the guarantee was part of a restructuring in a situation where it was already apparent that the business would, with a high probability, be unable to discharge the obligation from its operating activities. A poor or merely formal assessment of creditworthiness may also affect the proportionality of the enforcement of collateral.

The general duty of prevention (Section 2910 of the Civil Code) and the principle of fair dealing in business (Section 6 of the Civil Code) require that, when exercising a pledge right, the bank proceeds with regard to the legitimate interests of the debtor and the pledgor. 

If, for example, the bank knowingly sold the collateral at a conspicuously low price or failed to inform the pledgor about options to prevent enforcement of the collateral, it may face a claim for damages. As part of the argumentation, the debtor may also point out that the entire credit structure was unsustainable from the outset because the bank underestimated the assessment of creditworthiness.

Criminal-law dimension: credit fraud and the limits of the bank’s liability

In a number of disputed credit relationships, the question arises whether it was “only” an incorrect assessment of creditworthiness, or already credit fraud. The criminal offence of credit fraud (Section 211 of Act No. 40/2009 Coll., the Criminal Code, as amended) consists, among other things, in the perpetrator stating false or grossly distorted information or concealing information material to the decision to grant the loan when negotiating a credit agreement. 

According to the case law of the Supreme Court, this concerns not only information directly in the credit agreement, but also in ancillary documents submitted during negotiations – for example, financial statements, tax returns, or statutory declarations.

From a legal perspective, this means that a debtor who knowingly provides the bank with false information can only with difficulty later base their defence on the claim that “the bank should have assessed creditworthiness better”. Courts in criminal matters as well as in civil disputes take into account whether the debtor acted honestly and whether they sought to resolve the situation, or whether, on the contrary, they contributed to the damage by misleading the bank. 

This does not mean, however, that the bank is entirely without risk in such cases – even where the debtor has committed credit fraud, the Czech National Bank (ČNB) may examine whether the bank had sufficient control mechanisms in place and whether it could have detected the fraud, especially for standard products and amounts.

From a business owner’s perspective, it is therefore essential to ensure that the information provided to the bank is truthful and complete. Deliberately misrepresenting figures may lead not only to criminal prosecution, but also to a significant weakening of the negotiating position in a dispute with the bank. 

The attorneys of ARROWS, a Prague-based law firm, therefore recommend that if there are any doubts, clients should rather explain the risks openly and, where appropriate, try to negotiate a different financing structure with the bank, instead of “improving” the supporting documents and thereby exposing themselves to a much greater risk.

The evidentiary situation in disputes over incorrect assessment of repayment capacity

What evidence is used in civil proceedings

Civil court proceedings are governed by the principle of free evaluation of evidence and by a non-exhaustive list of means of proof set out in the Czech Code of Civil Procedure (Section 125 of Act No. 99/1963 Coll., the Code of Civil Procedure, as amended). Anything that can be used to ascertain the facts of the case may serve as evidence—typically documents, witness testimony, expert opinions, reports and statements of authorities or legal entities, notarial deeds, or electronic communications. 

In the context of disputes over loans and creditworthiness assessment, the key evidence consists in particular of loan agreements and their amendments, the bank’s internal documentation relating to the assessment of creditworthiness, documents submitted by the client, credit register records, account statements, and communications between the parties.

Legal literature notes that courts may also use evidence that is not expressly named in the statute, provided they appropriately determine how it is to be taken. In practice, this may include, for example, the bank’s audit records, internal methodologies, electronic logs of decision-making systems, or recordings of telephone calls with the client. 

From the perspective of a business owner defending against a bank’s claim, it is therefore important, already at the outset of the dispute, to consider what evidence can be obtained and how to secure it so that the bank cannot later be accused of its destruction or loss.

The creditworthiness assessment itself is often based on a combination of automated systems (scoring) and human decision-making. The Supreme Administrative Court has also addressed in its case law how software tools such as “Credit Risk” are used in practice to assess loan applicants. 

For the purposes of civil litigation, it is essential that even in automated processes it may be required that the bank substantiates what data the system relied on and what parameters were used.

In addition, European legislation in the area of consumer credit emphasises that the consumer has the right to challenge an automated creditworthiness assessment and request human intervention. Although this entitlement does not expressly apply to business owners, in practice a court may take into account whether the bank left the decision solely to an automated model without any individual assessment.

Burden of proof: who must prove what

The issue of the burden of proof is crucial in loan disputes. As a general rule, each party to the proceedings must assert the facts from which it derives favourable legal consequences and must also prove those facts (Section 101 of the Czech Code of Civil Procedure). 

If the debtor defends against the bank’s action by referring to an incorrect assessment of creditworthiness, they must assert specific circumstances in which that failure consisted. For example, that the bank did not examine their financial statements, did not verify income, ignored obvious warning signs, or provided refinancing despite demonstrable over-indebtedness.

On the other hand, legal doctrine and the practice of the Czech Financial Arbitrator emphasise that, as regards the obligation to assess creditworthiness, the burden of assertion and the burden of proof in principle lie with the credit provider (Section 90(2) of the Consumer Credit Act). The provider must be able to demonstrate what information it obtained from the client, how it verified it, and what conclusion it drew from it. If it cannot do so, this has fundamental consequences for its claims in the area of consumer credit.

In business loans, the rule is not as strict, but when assessing the bank’s professional care, the court also takes into account how transparently and consistently the bank proceeded. In practice, this means that an effective procedural strategy must combine both levels. 

The debtor should be prepared to show why the creditworthiness assessment was objectively insufficient, while the bank should be prepared to defend its methodology and its specific application. 

The attorneys of ARROWS, a Prague-based law firm, often cooperate in these disputes with economic experts who prepare expert opinions on the adequacy of the bank’s procedures and on whether a proper assessment would have led to a different decision on granting the loan or on its scope.

The approach of the Czech Financial Arbitrator and its significance for business owners

The Czech Financial Arbitrator is a specialised body for out-of-court dispute resolution in the area of financial services, which decides disputes between consumers and financial institutions under Act No. 229/2002 Coll., on the Financial Arbitrator, as amended. The proceedings are free of charge and less formal than court litigation, which makes them an attractive route especially for individuals. For business owners, it is particularly relevant in situations where it is disputed whether the loan is a consumer loan or a business loan.

If it is proven in the proceedings that the debtor acted as a consumer when entering into the agreement and that the loan is a disguised consumer loan, the Czech Financial Arbitrator may decide the matter and apply a stricter standard of responsible lending towards the provider. The collection of decisions of the Czech Financial Arbitrator, which the office publishes on an ongoing basis, makes it possible to track the development of decision-making practice and offers guidance for arguments in similar disputes.

Even though arbitral decisions do not formally concern business loans, courts and legal representatives often use them as persuasive authoritative sources when assessing the standard of care and the obligations of credit providers. Business owners may therefore benefit indirectly from disputes conducted before the Czech Financial Arbitrator—they show which practices may be assessed as insufficient or unfair, including in comparable products targeted at companies.

Most common questions on taking evidence in loan disputes

  1. What documents should I keep if I want to challenge the bank’s conduct later?Answer: The key documents are the loan agreement and all amendments, all email and written communication with the bank, internal minutes/records from meetings of the company’s bodies regarding acceptance of the loan, and the materials you provided to the bank (statements, plans, overviews). If you have any doubts, it is worth carrying out a targeted document review with the assistance of attorneys from ARROWS advokátní kancelář, whom you can contact at office@arws.cz.
  2. Can a court order the bank to produce its internal methodologies and scoring?Answer: Yes, a court may order the bank to produce documents in its possession if they are material to assessing the case; this may include internal methodologies or outputs from scoring systems, of course with due regard to the protection of trade secrets. In practice, however, it is often necessary to formulate precisely what is to be produced and why—an area where a litigation strategy prepared by attorneys from ARROWS advokátní kancelář after a consultation at office@arws.cz can be of significant help.
  3. If part of the bank’s decision-making is automated, can I challenge the algorithm itself?Answer: For consumer loans, European regulation expressly provides for the right to contest a purely automated decision and to request human review; for entrepreneurs, this right is not expressly enshrined, but it is possible to seek an explanation and evidence of what data the algorithm relied on. The viability of such arguments must always be assessed on a case-by-case basis, ideally after consulting both a lawyer and a data specialist; attorneys from ARROWS advokátní kancelář have experience with similar disputes and you can contact them at office@arws.cz.

Practical risks for entrepreneurs and how to prevent them

Internal processes and governance when taking out a loan

One of the common problems in business practice is that decisions on major loan financing are made under time pressure or without thorough internal analysis. Management often relies on the assumption that if the bank approved the loan, it “probably knows what it’s doing”. As a result, insufficient attention is paid to the company’s own assessment of the loan’s sustainability, business development scenarios, or the impact of the loan terms on the company’s other obligations.

Such an approach is very risky from both a legal and business perspective—because in a dispute it may turn against the management itself, which is required to act with due managerial care (Section 159(1) of the Czech Civil Code). A sensible setup of internal processes should include a systematic evaluation of the loan’s impact on cash flow, capital structure, and the company’s risk profile, including stress scenarios. 

Ideally, it is advisable to prepare an internal memorandum or minutes of the meeting of the body approving the loan, clearly describing the reasons and expected benefits, as well as the identified risks.

Although such a document is primarily a management tool, in a dispute it may serve as evidence that the company’s management properly assessed the situation—or, conversely, that it was warned of the risks but decided to ignore them. 

In practice, attorneys from ARROWS advokátní kancelář are often involved already at this preparatory stage, not only by providing legal review of the contractual documentation. They also provide consultations on the financing structure, alternative options (mezzanine financing, bringing in an investor, sale of part of the assets), or the impacts on corporate governance and the liability of statutory bodies.

Experience shows that a well-designed process before signing the loan agreement significantly reduces the risk of future disputes as well as the personal liability of management.

Table of typical issues and the role of ARROWS advokátní kancelář

Possible issues

How ARROWS helps (office@arws.cz)

Insufficient assessment of creditworthiness by the bank : a loan granted to a company with objectively unsustainable cash flow

Analysis of the loan documentation and financial situation: we will prepare an expert opinion on whether the bank acted with professional care and propose a defence strategy in court or out-of-court proceedings.

Acceleration of the loan and imposition of extreme penalties : high default interest, contractual penalties, immediate enforcement of security

Representation in disputes and negotiations: we will assess the proportionality of the penalties, including any conflict with good morals, and help you negotiate a restructuring or an amicable settlement with the bank.

Disguised consumer loan agreed “under a company ID number”: loss of consumer protection and swift enforcement or auction of assets

Assessment of the nature of the loan and assertion of consumer protection: we will verify whether it is in fact a disguised consumer loan and, if so, we will raise the relevant objections and defence against the provider.

Risk of personal liability of statutory bodies for accepting unsustainable financing

Compliance and governance advisory: we will set up loan approval processes, prepare internal policies and materials for the company’s bodies so that management acts with due managerial care.

Threat of regulatory consequences and reputational harm in a dispute with the bank or a sanction from the Czech National Bank (ČNB)

Comprehensive crisis management: we will represent you in negotiations with the bank and, where applicable, with the Czech National Bank (ČNB), prepare a communication strategy, and minimise reputational and financial impacts on your business.
Compliance, training, and long-term relationships with banks

From a medium- and long-term perspective, it is crucial for larger companies and groups to build a relationship with banks based on transparency and trust. At the same time, it is necessary to set internal guardrails that prevent the acceptance of unsustainable financing. This includes not only processes at the level of individual loan cases, but also general borrowing principles, risk concentration limits, and regular evaluation of the loan portfolio.

In this area, ARROWS advokátní kancelář offers clients not only ad hoc legal services, but also long-term external legal counsel, drafting of internal policies, compliance programmes, and professional training for management and legal departments. 

Thanks to the ARROWS International network, it is also possible to address loan relationships with an international element, for example in financing foreign acquisitions, syndicated loans, or relationships with banks from foreign groups.

Final summary

Business loans are a fundamental financing tool for companies, but once they fall into arrears or are accelerated, the legal and regulatory rules applicable to the credit relationship begin to apply in full. Under Czech law, the bank’s obligation to assess the borrower’s ability to repay is regulated most prominently for consumer credit, where an incorrect assessment leads to serious consequences for the validity and enforceability of the agreement as well as to sanctions by the Czech National Bank (ČNB) (§ 87 and § 149 of the Consumer Credit Act). 

For business loans, the situation is more complex: the bank’s liability is derived from a combination of the general duty of professional care (§ 5(1) of the Civil Code), banking regulation, specific contractual arrangements, and the circumstances of the particular case, including whether it is in fact a disguised consumer loan.

This leads to several practical takeaways for entrepreneurs, management, and investors. Already when negotiating the loan, it is essential to actively consider your own ability to repay, carefully negotiate the contractual terms, and keep internal documentation demonstrating that the decision was made on an informed basis. 

If repayment problems arise, it makes sense to analyse early on whether the bank acted in accordance with its duties and to consider defence options—from negotiating a restructuring to court litigation.

However, the complexity of the legal framework, its links to regulatory rules, and the procedural pitfalls of court proceedings mean that improvised solutions without expert legal support may lead to further damage, a loss of negotiating leverage, and a prolonged dispute. 

If you do not want to risk mistakes, delays, or unnecessary losses when negotiating or resolving business loans, it is sensible to entrust the contract analysis, the setup of the relationship with the bank, and any defence in court or out-of-court proceedings to experienced lawyers. 

ARROWS, a Prague-based law firm, has long focused on credit disputes, bank liability, and the structuring of financing, and can provide you with both a one-off expert opinion and comprehensive representation and negotiations with creditors. If you are dealing with a specific credit issue or want to review your financing preventively, you can contact us at office@arws.cz.

Most common questions on business loans and litigation: When a bank is liable for an incorrect assessment of the ability to repay
  1. How can I tell whether the bank actually made a mistake when assessing the ability to repay?Answer: It is not enough that the company ran into difficulties—the key question is whether, at the time the loan was agreed or refinanced, the bank neglected standard steps such as analysing financial statements, verifying cash flow, taking existing liabilities into account, or considering industry developments. This is assessed in light of internal and regulatory standards and the standard of professional care (§ 5(1) of the Civil Code); therefore, it makes sense to have the loan and the available documentation reviewed by an experienced attorney or expert, which ARROWS, a Prague-based law firm, can arrange after you contact us at office@arws.cz.
  2. Can a court reduce interest and contractual penalties if the bank granted a loan to a company where it was obvious it would not be able to repay?Answer: Yes, courts may moderate contractual penalties (§ 1800(2) of the Civil Code) and, in extreme cases, may also assess interest provisions as contrary to good morals (§ 588 of the Civil Code) if, in the context of the specific case, they are disproportionate. This particularly concerns situations where the bank combined a higher debtor risk with an evidently excessive price and sanctions; the attorneys at ARROWS, a Prague-based law firm, can help you prepare appropriate arguments and procedural steps, and you can reach us via office@arws.cz.
  3. What are my chances of succeeding with an objection that the creditworthiness assessment was incorrect if I myself signed that I was aware of the risks?Answer: Signing a risk acknowledgment does not mean the bank is automatically relieved of liability—especially where it is a disguised consumer loan or where objective data clearly showed the financing was unsustainable. However, courts also assess the level of professionalism of the debtor and the debtor’s own contribution to the situation, so an individual analysis is always necessary; ARROWS, a Prague-based law firm, can assist with preparing it and with a realistic assessment of your chances once you send the documents to office@arws.cz.
  4. What should I do if the bank has accelerated the loan and a fast foreclosure sale of the collateral is threatened?Answer: In such a situation, it is important to act quickly—verify whether the acceleration was in line with the contract, consider filing for a preliminary injunction, start restructuring negotiations, and prepare any defence for court proceedings. Arguing an incorrect creditworthiness assessment may be one of the elements that helps challenge the acceleration or the scope of the claim; ARROWS, a Prague-based law firm, can ensure a coordinated approach if you contact us immediately at office@arws.cz.
  5. Does it make sense to turn to the Financial Arbiter if the loan was taken out under a business ID number (IČO)?Answer: It makes sense in cases where it can be argued that it was in fact a consumer loan only formally concluded “under an IČO”—typically for individuals who used the loan for personal needs. If it is proven in the proceedings that you acted as a consumer, the Financial Arbiter may apply stricter responsible lending rules; ARROWS, a Prague-based law firm, can help assess whether this route is suitable for you, and you can contact us at office@arws.cz.
  6. What role does the new European Consumer Credit Directive (CCD2) play for business loans?Answer: The new Directive (EU) 2023/2225 (CCD2), fully applicable from 20 November 2026, primarily strengthens consumer protection. It introduces stricter requirements for a genuine assessment of the ability to repay and, for loans granted to persons who objectively cannot repay, limits the creditor’s claims to principal without interest and fees. For business loans, it matters indirectly—it sets a benchmark against which responsible lending will be assessed and increases pressure on banks to apply similar professional-care principles in corporate financing as well; you can consult ARROWS, a Prague-based law firm, about the specific impact on your agreements at office@arws.cz.

Notice: The information contained in this article is of a general informational nature only and is intended for basic orientation in the matter based on the legal situation as of 2026. Although we take utmost care to ensure maximum accuracy, legal regulations and their interpretation evolve over time. We are ARROWS, a Prague-based law firm, an entity registered with the Czech Bar Association (our supervisory authority), and for maximum client security we are insured for professional liability with a limit of CZK 400,000,000. To verify the current wording of regulations and their application to your specific situation, it is necessary to contact ARROWS directly (office@arws.cz). We accept no liability for any damages arising from the independent use of the information in this article without prior individual legal consultation.

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