What happens at a commercial loan review?
Quick answer: A commercial loan review is the lender reassessing your loan, often as if it were a new deal. It checks your latest financials, whether the business still comfortably covers the repayments, whether you’re meeting the conditions in your loan agreement, and what any property securing the loan is worth today. Start preparing about three months before the review date.
We help business owners across Australia arrange and restructure commercial finance, and one of the most common surprises we see is the loan review.
Unlike most home loans, many commercial loans aren’t set and forget. They come with shorter terms and regular reviews. Each review is the lender taking a fresh look at your deal, and it doesn’t assume nothing has changed.
What is a commercial loan review?
It’s a scheduled reassessment of your loan by the lender. Depending on the loan, it may happen every year, before the term ends, or both.
The lender wants to confirm the loan still makes sense on today’s numbers, not the numbers you had when it was approved. If it’s satisfied, the loan usually continues. If not, it may ask for changes before it agrees to continue.
What does the lender check at a review?
Most reviews come down to four things.
Your latest financials. Up-to-date accounts, tax returns and often management accounts, showing how the business is trading now.
Servicing headroom. Whether the business earns enough to cover the repayments with room to spare, not just enough to scrape by.
Your loan conditions. Whether you’re meeting the conditions set out in your loan agreement. These are sometimes called covenants, and they can include financial ratios, reporting deadlines or limits on other borrowing.
The security. If property backs the loan, the lender looks at what it’s worth today and, for commercial property, the state of the lease. That can include who the tenant is, how long is left on the lease and what rent is being paid.
Why can a review change your loan even if you’ve never missed a payment?
Because a review measures more than whether the repayments are being made.
A business can be paying on time and still fall outside a loan condition. A property’s value can move. A tenant can leave or a lease can get close to expiry. Any of these can change how the lender sees the deal, even when nothing has gone wrong from your side.
That’s why it pays to know what’s in your loan agreement before the lender raises it.
What can happen after a review?
Often, nothing changes and the loan continues. But a review can also lead to:
a request for more information or updated documents
a new valuation of the property
changes to the loan’s conditions, pricing or term
a request to reduce the loan or add security.
None of that is automatic. How much notice you have, and how well prepared you are, makes a real difference to how it plays out.
How do you prepare for a commercial loan review?
Start about three months before the review date.
Update your accounts. Get your financials and management accounts current, so you’re not waiting on your accountant when the lender asks.
Re-read your loan conditions. Know what you agreed to, and check whether you’re meeting each condition today.
Check your lease and your property’s value. Note when the lease ends, and get a realistic view of what the property might be worth now.
Have the explanation ready. If a year looks unusual or something has changed, be ready to explain why and what happens next.
Don’t wait for the letter. By then you’re reacting instead of preparing.
Frequently asked questions
How often are commercial loans reviewed? It depends on the loan. Many are reviewed every year, and many have shorter terms than a typical home loan, so they need to be renewed or refinanced more often. Your loan agreement sets out the review dates.
What are loan covenants? They’re conditions in your loan agreement that you agree to meet while you have the loan, such as financial ratios, reporting deadlines or limits on other borrowing. A lender checks them at each review.
Can a lender ask for a new valuation at a review? Yes. If property secures the loan, the lender may want a current valuation, because it lends against what the property is worth now, not what you paid for it.
What if the business has had a tough year? Raise it early. Lenders generally respond better to a clear explanation and a plan than to finding the problem themselves at the review.
Should I refinance instead of going through a review? Sometimes. A review is a good moment to check whether the loan still fits the business, but refinancing has its own costs and requirements. Compare the whole loan, not just the rate.
About the author Thomas Pambris is a Commercial Finance Broker at George Capital Finance Solutions. He works with business owners across Australia on commercial property, business lending and refinancing. (02) 9072 9288
General information only. Not financial advice. Individual circumstances and lender assessment apply.
