Commercial loan terms and covenants: what borrowers sign and later discover
The pricing conversation takes an hour and the covenant conversation takes five minutes. The covenants are what actually decide how the facility behaves for the rest of its life.
A commercial facility is a relationship with conditions attached, not a fixed arrangement. The lender reserves the right to reassess, and the covenants describe the circumstances in which it will — or in which the facility is already in default without anyone missing a payment.
That is the point borrowers most often miss. A business can be paying on time, trading profitably, and still be in breach because a ratio moved or a document was not provided.
The review date
When the lender reassesses. A facility can be repriced, reduced or not renewed at review, which is a refinance decision arriving on the lender's timetable rather than the borrower's.
Repayable on demand
Common on limits and overdrafts. Rarely exercised in normal conditions, and the reason a limit is a weaker foundation than a term facility — see overdraft, LOC or term loan.
Gearing covenants
Debt against value, tested periodically. A revaluation in a softer market can breach a covenant with no change in the borrower's behaviour at all.
Interest cover covenants
Income against the interest commitment. A tenant leaving, or outgoings rising, moves this before anyone notices.
Reporting obligations
Financials by a date, rent rolls, insurance certificates. Administrative until they are missed, at which point they are a technical default.
Cross-default and cross-collateralisation
A default on one facility triggering another, or security supporting more than the borrower assumes. The clause most worth reading in a multi-facility relationship.
None of this is legal advice, and complex documents deserve a solicitor. But these are the points worth raising so the borrower knows what to ask about.
- When the review date is, and what it sits near. A review landing in the same quarter as a major lease expiry stacks two decisions together — see lease covenants and WALE.
- How the ratios are calculated. Which income, which valuation basis, how often tested. Two facilities with identical headline covenants can behave very differently.
- Who orders the revaluation and who pays. A lender-initiated revaluation at the wrong point in a cycle is how covenant breaches appear without any change in trading.
- What the reporting calendar actually is. Diarise it at settlement. Most technical defaults are missed deadlines rather than financial problems.
- Whether facilities are cross-defaulted. Especially where the borrower holds several with the same lender or across a group.
- What happens on breach. Cure periods, notice, and whether the lender's first move is a conversation or a demand.
The instruments behind all of this — general security agreements, guarantees, priority arrangements — are covered in security and guarantees.
Most commercial borrowers experience the covenant regime exactly once: at review, when the answer is not automatic. A facility that has performed perfectly can be repriced because the lender's appetite for the sector changed, or reduced because a valuation moved, or not renewed because the lender exited the asset class.
The practical protection is preparation rather than negotiation. A borrower who starts the refinance conversation months before the review has options; one who starts when the letter arrives has a deadline. That is the situation behind a large share of maturity enquiries and interest-only expiries, and it is the most predictable event in commercial finance.
It is also a reason to keep the relationship warm. Brokers who diarise their clients' review dates and make contact a quarter ahead convert a far higher proportion of them than brokers who wait for the client to call.
Business credit grew 10.8% year on year to the end of July (RBA Financial Aggregates, July 2026), so facilities are being written and reviewed in a growing market. The complication is on the non-bank side: Australia's private credit market is roughly $225bn (The Adviser, August 2026), and some Australian real-estate credit funds gated redemptions across July and August 2026 (trade press, August 2026). A lender managing its own liquidity is a less predictable counterparty at review, which makes early preparation more valuable, not less.
We do not draft, review or advise on facility documents. Where a borrower is approaching a review or an expiry, that shows up in the timeframe and the notes on the enquiry.
Commercial finance leads and commercial property refinance leads are sold once, to one broker, never resold, delivered in real time. Pay per lead, no lock-in contracts, no setup fees. The lead is an introduction, not a recommendation, and we do not provide credit or legal advice.