Commercial Loan Covenant Breach or Interest-Only Expiry: Your Options
Commercial Property
Commercial loan breach, default notice, non-renewal and interest-only expiry
Borrowers rarely search the legal label first. They search the words in the lender letter: reservation of rights, credit management, default notice, refinance elsewhere, interest-only expiry or balloon due. This guide starts with those messages, explains what happens next, and compares the practical paths: cure the breach, negotiate a reset, inject equity, refinance, sell, or get restructuring advice.
Quick Answer
A covenant breach, default notice, non-renewal letter and interest-only expiry are not the same event. The document and facility agreement determine the deadline and the lender's rights, while cashflow, equity and solvency determine whether the practical path is a cure, reset, refinance, sale or restructuring.
What to do now: identify the document, deadline and exact trigger; ask the lender to confirm its position and payout requirements in writing; keep repayments, insurance and reporting current where possible; and build a lender-negotiation plan and an exit plan at the same time. General information only.
What notice or lender message have you received?
The wording matters because a request for information, a reservation of rights letter, a covenant-breach notice, a non-renewal letter and a formal demand are different stages. Start by naming the document before deciding whether the next call is to the lender, a broker, a lawyer or a restructuring practitioner.
The table translates the phrases borrowers commonly see or search after a lender review. Your facility documents and the notice itself govern, so use this as a triage guide rather than legal advice.
| Words you may see | What it usually signals | What to do next |
|---|---|---|
| Request for financials, valuation or covenant certificate | The lender is reviewing the facility or checking whether a covenant is still being met. It is not necessarily a breach notice. | Provide accurate information by the stated date and ask whether the review has identified any concern. |
| Reservation of rights | The lender is recording a possible breach or default and preserving its contractual rights while discussions continue. | Acknowledge the letter, ask what cure or proposal the lender will consider, and have a lawyer read it if the consequences are unclear. |
| Covenant breach, waiver or reset | A stated financial, reporting or other covenant has been broken, and the lender is deciding whether to waive it, reset it or impose conditions. | Confirm the calculation, cause, cure date and conditions in writing; prepare the missing information, paydown or refinance plan. |
| Moved to credit management, asset management or workout | A specialist team now controls decisions because the facility needs closer risk management. | Ask who has authority, what information they need, and what outcome and timeframe they expect; build a parallel exit option. |
| Will not renew, refinance elsewhere or exit the bank | The lender expects the balance to be repaid at or before a stated date, even if the loan is currently performing. | Get the date and payout requirements in writing, then compare extension, refinance, paydown and sale options before the deadline controls the decision. |
| Interest-only expiry, maturity or balloon due | A scheduled loan event is approaching: repayments may switch to principal and interest, or the balance may become due. | Check the loan schedule and test extension, principal-and-interest affordability, refinance and sale well before maturity. |
| Default notice, demand or acceleration | The lender is relying on formal rights under the documents and may require a cure or full repayment by a stated date. | Do not assume a refinance application pauses the deadline. Obtain legal advice and run any refinance or negotiated standstill in parallel. |
| Creditor's statutory demand or receiver appointment | This is no longer an ordinary lending review. It can engage insolvency or enforcement law. | Send the document to a commercial litigation or insolvency lawyer immediately and do not treat it as a normal broker deadline. |
Do not rely on the subject line alone
Open every attachment and read the defined terms, dates and requested action. A lender email may sound informal while attaching a formal notice, and a refinance discussion does not suspend contractual or statutory deadlines unless that is confirmed in writing.
What is a covenant breach on a commercial property loan?
A covenant breach occurs when a borrower breaks a condition in the commercial loan documents. It can be an event of default even when every repayment is current, because covenants let a lender act before a payment is missed.
Common financial covenants include a loan-to-value (LVR) limit, an interest-cover ratio (ICR) and a debt-service-cover ratio (DSCR). Non-financial covenants can require financial statements, covenant certificates, insurance or other information by a stated date.
The type of covenant matters, because it shapes the conversation. A financial-ratio breach usually reflects something real about the loan or the property, while a reporting or technical breach is often a paperwork problem that can be cured. The loan covenant entry sets out the common types in plain terms. Breaches are also more common, and more survivable, than the letter makes them feel: Reserve Bank research analysing listed-company reports found the share of companies reporting debt covenants rose from around 10 per cent in 2002 to almost 40 per cent in 2020, while the share of covenanted firms reporting a breach held steady at roughly 13 per cent a year, and firms that breached generally moved quickly to bring their ratios back into line (RBA Bulletin, December 2021, data to 2020). What follows is what trips each one, what a lender can do about it, and the ways a solvent borrower refinances out, and it is general information rather than advice about your specific facility.
What trips a covenant on a commercial property loan?
A commercial loan covenant is commonly tripped by a lower valuation, weaker cashflow or a missed reporting obligation. The exact trigger should be stated in the lender's notice or identified in the facility documents.
A fresh valuation can push the loan above its LVR limit even when repayments are current. Softer trading, higher interest expense or a lost tenant can reduce ICR or DSCR. A late financial statement, covenant certificate or insurance renewal can create a technical breach. Our note on how a commercial valuation is read covers the revaluation issue.
Usually the more recoverable: a technical or reporting breach
- The paperwork tripped, not the payments
- Repayments are current and the loan is performing
- The cause is a late statement, covenant certificate or lapsed insurance
- A waiver or a cure is often available once the report is provided
Usually the harder: a financial-ratio breach
- A revaluation has pushed the loan-to-value above its limit
- Interest-cover or debt-service has fallen below its floor
- The headroom buffer has eroded as costs have risen
- The property income has genuinely changed, not just the paperwork
Knowing which force tripped the covenant tells you what kind of fix is realistic. A reporting breach usually needs the missing information and a waiver; a financial breach usually needs a reset, a reprice, more equity, or a refinance. The sections below take the lender response, the interest-only reset and the exit routes in turn.
How do you check whether the lender calculated the covenant breach correctly?
Ask the lender to identify the exact covenant clause, testing date, inputs and formula it used. Reconcile each figure to the signed facility documents, later variations, valuation, debt balance, leases and financial accounts rather than assuming the lender's headline LVR, ICR or DSCR is the contractual calculation.
| Check | What to ask for | Why it can change the result |
|---|---|---|
| Clause and test date | The facility clause, definition schedule, calculation date and reporting period relied on. | A ratio may be tested monthly, quarterly, annually, on review or after a specified event. |
| Valuation and debt figure | The valuation amount, effective date, valuer, total secured debt and any related facilities included. | An outdated valuation, cross-collateralised debt or an incorrect payout balance can change LVR. |
| Income or earnings input | The rent, net property income, EBITDA or other earnings figure used, including vacancies and one-off items. | The facility may permit or exclude particular adjustments, management fees, related-party rent or extraordinary costs. |
| Interest and debt service | Whether the lender used actual interest, a stressed rate, principal repayments, balloon amounts or all scheduled debt service. | ICR and DSCR can produce different answers depending on the contractual numerator and denominator. |
| Permitted adjustments | Any add-backs, exclusions, annualisation rules, cure payments or other adjustments allowed by the documents. | A lender's internal credit measure is not automatically the same as the covenant written into the contract. |
| Cure, waiver and reset rights | Any grace period, equity-cure right, right to provide missing information, waiver process or amendment conditions. | The breach may be curable even when the raw ratio is outside its limit. |
| Next test and consequences | When the covenant will next be tested and what pricing, reporting or repayment conditions apply meanwhile. | A temporary waiver may leave the underlying ratio, default rights or future deadline unchanged. |
Prudential rules and a bank's internal policies can influence how it manages risk, but they do not replace the wording of your facility agreement. A commercial lawyer should check the clause and any waiver or variation, while your accountant and broker can help test the figures, valuation assumptions and refinance implications. This is general information, not legal or accounting advice.
Before signing a waiver or variation
Check whether it acknowledges an event of default, changes the margin or default interest, adds reporting obligations, shortens the maturity date, expands security or guarantees, or waives existing rights. A document described as a waiver may also rewrite the facility.
What can a lender do when you breach a covenant?
Depending on the facility documents, a lender may waive the breach, reset the covenant, reprice the loan, require a paydown, accelerate the debt or enforce its security. A performing facility is often negotiated before enforcement, but the lender is not required to follow a fixed order.
A reservation of rights letter means the lender is preserving its contractual rights while discussions continue. A transfer to credit management, asset management or a workout team means the facility is receiving closer risk management; it is not enforcement by itself, but it is a signal to respond and prepare an exit plan. The table sets out each action and the practical response.
| What the lender may do | What it means | A sensible borrower response |
|---|---|---|
| Waiver or standstill | The lender agrees not to act on the breach, often for a set period or on conditions, while a plan is worked out. | Ask for the waiver in writing, confirm what conditions attach and how long it runs, and use the time to line up the fix. |
| Transfer to a specialist credit team | The file moves from your usual banker to the lender's credit management, asset management or workout team for closer handling. | Engage early and in writing, ask what the team wants to see, and start testing a refinance in parallel so the lender's plan is not the only plan. |
| Covenant reset | The covenant is renegotiated to a level the loan can meet, sometimes with new conditions or a review date. | Understand the new level and any conditions, and check the reset is achievable before agreeing to it. |
| Reprice, higher or default interest | The margin rises, or a default interest rate applies, to reflect the changed risk. | Confirm the full cost in writing, ask how the reprice can be removed later, and weigh it against a refinance. |
| Reduce or partly repay | The lender asks for a paydown to restore the ratio, for example to bring the loan-to-value back within limit. | Test whether equity, a second-ranking facility or a partial refinance can fund the reduction. |
| Acceleration | The lender declares a default and calls the balance due if the breach is not resolved. | Get legal advice immediately, and open the refinance and workout conversations in parallel. |
| Enforcement | The lender enforces its security, which can include appointing a receiver or exercising a power of sale. | This is a lawyer-and-adviser situation; a refinance may still be possible, but time and options are shrinking. |
A reprice can include a higher margin or a default interest rate, and default rates come from the contract. In Victoria the statutory penalty interest rate is fixed at 10 per cent a year under the Penalty Interest Rates Act 1983 (Vic), unchanged since 1 February 2017, and many Victorian contracts reference it as a fallback; a specific loan may fix a different default rate, and this is a statutory fallback rather than a market rate. The default entry explains how a default is declared and how it differs from ordinary arrears, and the Reserve Bank's work on corporate debt covenants in Australia is useful background on how lenders use them. None of this is legal advice; your facility documents govern.
What should you do first after a covenant breach, default notice or non-renewal?
Your first job is to control the information and the clock. Identify the document and deadline, confirm the lender's position in writing, keep the facility as clean as possible, and build both a negotiation plan and an exit plan before choosing a product.
A broker can test refinance options, but legal advice is needed where the notice, guarantee, demand or enforcement rights are unclear. A restructuring practitioner should come before new borrowing where the company may not be able to pay its debts as they fall due.
Your first response
What happens when the interest-only period ends?
When an interest-only period ends, the loan usually switches to principal-and-interest repayments for the remaining term, unless the lender approves a new interest-only period or the facility must be repaid or refinanced at maturity. The repayment usually rises because principal is now being repaid over less time.
During an interest-only period, repayments cover interest but do not reduce the principal. The shorter remaining amortisation period can make the step-up larger than expected. Moneysmart explains the general mechanics; a commercial facility also turns on the property income, review terms and maturity date.
The reset is a scheduled event, not a penalty, but it lands like a shock when it is not planned for. The cleanest response is to decide early whether to let it revert, extend the interest-only period, or refinance to another lender. Our guide to refinancing an interest-only commercial loan covers the timing, and the refinancing entry covers the mechanics. If a covenant breach and an interest-only reset arrive together, which happens more often than it should, treat them as one project rather than two, and this remains general information, not financial advice.
Can you extend interest-only, or must you refinance?
Possibly, but an interest-only extension requires the lender's approval and usually a fresh assessment. If the lender declines, the alternatives are principal-and-interest repayments, repayment at maturity or a refinance to another facility.
Reverting normally needs no new application but raises the repayment. Refinancing is relevant when the current lender will not extend, the loan no longer fits, or a covenant breach has changed the terms. For a covered small-business loan at a subscribing bank that is not structured to be fully repaid over its term, the 2025 Banking Code requires at least three months notice of a decision not to extend, provided the loan is not in default; the facility documents and any existing default still matter.
| Option | When it fits | The catch |
|---|---|---|
| Extend the interest-only period | The current lender is willing, the loan is performing, and you want to keep repayments lower for a defined further period. | It is usually a full reassessment with a fresh serviceability check, and it is not guaranteed to be offered. |
| Revert to principal and interest | The higher repayment is affordable and you want to keep paying the loan down without moving it. | The step-up can be sharp because the principal is spread over a shorter remaining term. |
| Refinance to another lender | The current lender will not extend, the terms no longer fit, or a covenant breach or reprice makes a clean move sensible. | It needs equity or serviceability, a known payout path, clean title and a credible exit. |
Where the income is harder to evidence in the usual way, a lease-doc approach that reads the rent roll, or a low-doc commercial approach, can still support an extension or a refinance on the right security. It is usually worth testing an extension and a refinance side by side rather than one after the other, so a refusal from one does not cost you time on the other. General information, not financial advice.
Should you negotiate, inject equity, refinance or sell?
The right response depends on what actually caused the problem. A technical breach may only need a cure and waiver; a modest LVR gap may be solved by a paydown; a viable business facing lender exit may refinance; and a loan with no affordable repayment or credible refinance exit may require a sale or restructuring advice.
Choose the outcome before choosing the loan product. The table compares the main paths a borrower may consider after a covenant breach, interest-only expiry, maturity or non-renewal.
| Possible path | When it may fit | What must be tested |
|---|---|---|
| Cure the technical breach | The issue is missing information, an expired insurance policy, a late covenant certificate or another remediable reporting failure. | What the documents require, whether the lender will waive the breach, and whether any fee, review or new condition follows. |
| Waiver, covenant reset or extension | The loan remains supportable, but the covenant, interest-only period or maturity needs to be changed with the current lender. | The new covenant headroom, repayment, review date, pricing, conditions and whether the reset merely delays the same problem. |
| Paydown or equity injection | A defined amount restores the LVR or reduces the repayment to a sustainable level. | Where the funds come from, whether they create another debt problem, and whether the business remains adequately capitalised afterward. |
| Full refinance | The business is solvent and another commercial property lender can support the property, cashflow and payout. | Fresh valuation, equity or serviceability, clean title, payout and consent path, total moving cost, and a credible longer-term exit. |
| Shorter-term secured facility | A private lending, second mortgage or caveat-secured facility may create time for a defined refinance, sale or project completion. | All fees and default terms, first-lender consent usually documented in a priority deed, the real repayment exit, and whether the shorter-term cost is justified. |
| Orderly property or asset sale | A sale can repay or reduce the loan where refinancing is not affordable or would only postpone the problem. | Likely net sale proceeds after costs and tax, lender cooperation, time to market, business continuity, and any shortfall or guarantee exposure. |
| Restructuring advice | The company may be unable to pay debts as they fall due, or the proposed new debt has no credible repayment path. | Solvency, director duties, safe harbour or small-business restructuring options, creditor priorities and the effect on guarantors. |
The product pages explain the mechanics once the outcome is clear: private lending, second mortgages, caveat-secured facilities, equity release and development finance. The second mortgage guide, caveat loans guide and private mortgage lenders guide cover consent, priority and shorter-term exits in more detail.
Solvency comes first
A covenant breach does not automatically mean the company is insolvent, but refinancing to repay one lender can make the position worse if the company cannot otherwise pay its debts as they fall due. A timing gap with real equity or serviceability is a lending conversation. A solvency gap is a restructuring conversation. Get advice before borrowing to repay.
From the underwriter's seat, general and without figures
A replacement lender is not only asking whether there is enough security. It is asking whether the event is understood, whether the borrower can perform under the new facility, and whether the new loan has a credible end point.
- What is read first: the notice, repayment status, fresh property position, security structure, reason for the breach, and the proposed repayment or refinance exit.
- What commonly stalls the file: an unexplained breach, no current payout, stale financials, uncertain consent or priority, a valuation assumption with no evidence, and an exit that depends on another untested loan.
- What usually helps: one consistent explanation, complete documents, a realistic valuation range, proof of income or leases, and a fallback plan if the preferred refinance is declined.
- What happens next: valuation, credit assessment, legal review, payout coordination and settlement each have dependencies, so the lender negotiation and refinance work should overlap rather than run one after the other.
General information only, from broking experience, and not a promise about your loan. This is not an offer, approval or likelihood of approval. Every application is assessed on its own facts, security, exit and lender policy at the time. New borrowing is not a fix for insolvency.
What documents are needed to refinance a breached commercial loan?
A new lender usually needs the current facility documents and notices, a reliable payout figure, current property and income evidence, the full liabilities position, and a clear explanation of what happened and how the replacement loan will be repaid. A complete file does not guarantee approval, but an incomplete file can consume the available time.
Owner-occupied and investment properties are read differently. An owner-occupied property relies more heavily on the trading business and its cashflow; an investment property relies more heavily on leases, rent, outgoings, tenancy quality and the property's ability to support the debt.
| Document or evidence | What it answers | Examples |
|---|---|---|
| Current facility and every lender notice | What the borrower agreed to, what event is alleged, what security is held and what dates are running. | Facility agreement, schedule, variation letters, covenant certificates, reservation of rights, breach or default notice, non-renewal or maturity letter. |
| Current payout position | How much must be refinanced and whether default interest, break costs, legal fees or other amounts are accruing. | Payout statement, latest loan statement, arrears position and lender contact for settlement coordination. |
| Property evidence | What the security is worth and whether title, use, condition or planning issues affect the proposed loan. | Rates notice, title details, prior valuation, purchase contract, tenancy schedule, insurance and property description. |
| Income evidence for owner-occupied property | Whether the trading business can support the proposed repayments. | Financial statements, tax returns, BAS, business bank statements, management accounts and a current liabilities schedule. |
| Income evidence for investment property | Whether rent and lease quality support the proposed debt. | Executed leases, rent roll, tenant details, outgoings, arrears, incentives, vacancy information and property-management statements. |
| Tax and other liabilities | Whether the refinance solves the whole position or only moves one creditor ahead of others. | ATO integrated client account, payment plans, trade creditors, equipment finance, other mortgages, guarantees and contingent liabilities. |
| Borrower and security structure | Who owns the property, who owes the debt and which entities or people provide guarantees or security. | Company and trust documents, ASIC extracts, identification, organisational chart, mortgages, general security agreements and priority arrangements. |
| Breach explanation and exit plan | Why the event occurred, what has changed, and how the new loan will be repaid, refinanced or reduced. | Short written chronology, supporting evidence, cashflow forecast, sale plan, project completion plan or path back to mainstream lending. |
What protections apply to a commercial borrower, and which do not?
A commercial borrower usually has fewer statutory protections than a home-loan borrower. Genuine business-purpose credit generally sits outside the National Credit Code, so consumer hardship and default-notice rules often do not apply; the loan purpose and documents must be checked.
Commercial-only lenders may not need an Australian credit licence or AFCA membership. The ASIC Act can still apply to unconscionable or misleading conduct and unfair terms in eligible standard-form small-business contracts. AFCA can only consider a complaint against a member firm and applies its own small-business definition.
The Banking Code binds subscribing banks only. Where it applies, its protections are specific: the 2025 Code restricts enforcing most covered small-business loans over non-monetary defaults such as a financial-indicator covenant, generally requires notice and at least 30 days to remedy a non-monetary default that can be remedied, and commits subscribing banks to seeking recovery from the borrower before enforcing against a guarantor, with carve-outs including property development and specialised lending (Banking Code of Practice, as at 2025). Personal exposure also depends on any director's guarantee and additional security. The table summarises the main protections; this is general information, not legal advice.
| Protection | Who it covers | The limit |
|---|---|---|
| National Credit Code | Mainly consumer and residential-investment credit for personal, domestic or household purposes. | Genuine business-purpose credit generally sits outside it, so consumer hardship and default-notice rules often do not apply. |
| Banking Code of Practice | Small-business customers of subscribing banks; the 2025 Code covers businesses with up to $5 million in total borrowings. | Binds subscribing banks only; a non-bank or private lender is not covered, and carve-outs apply for property development and specialised lending. |
| AFCA jurisdiction | Small business, defined by AFCA as fewer than 100 employees, against firms that are AFCA members. | A commercial-only or private lender may not be a member, AFCA expects a complaint to the lender's internal dispute resolution team first, and it will not usually override a legitimate commercial decision. |
| Unfair contract terms | Standard-form small-business contracts, which can include some loan contracts. | A court decides whether a term is unfair; coverage depends on the contract. |
| ASBFEO | Small businesses and family enterprises. | Offers guidance and help with disputes, but is not a regulator that can force a lending decision. |
The detail sits with each body, and it is worth going to the source: ASIC on the rules that apply to commercial loans, AFCA on small business, the Banking Code of Practice, and the Australian Small Business and Family Enterprise Ombudsman. Because a commercial borrower carries the lowest level of legal protection, the checks matter more, not less, and this is general information, not legal advice.
What if you cannot refinance yet?
If a refinance is not available, ask the lender in writing whether it will grant a waiver, standstill, covenant reset or short extension, and keep providing the information required under the facility. A refinance application does not stop a deadline unless the lender confirms that in writing.
If the company may be unable to pay its debts as they fall due, obtain advice from a registered restructuring practitioner before taking on new debt. New borrowing should not be used to disguise insolvency. Also understand the security and enforcement path, and use free financial counselling early.
If a refinance is not available yet
A statutory demand is not a refinance deadline
A creditor's statutory demand is a formal Corporations Act document served on a company, not an ordinary bank letter. It needs a debt of at least $4,000, gives 21 days to comply or to apply to set it aside, and non-compliance can raise a presumption that the company is insolvent (Corporations Act 2001, sections 459E and 459G). If a document refers to section 459E or Form 509H, or says "Creditor's Statutory Demand for Payment of Debt", send it to a commercial litigation or insolvency lawyer immediately rather than treating it as a refinance deadline.
Where enforcement over the property is already in train, the guide to refinancing out of mortgagee in possession covers that narrower situation, and a private lending facility can sometimes provide a temporary route to an orderly exit. Directors also carry a duty to prevent insolvent trading, so if the company genuinely cannot pay its debts as they fall due, the first conversation is with a registered liquidator or restructuring practitioner, not a lender (ASIC insolvency guidance for directors; safe harbour may apply; not legal advice).
Where to get help
If the pressure is broader than this one loan, free and independent help exists, and reaching out early usually opens more doors than waiting. Talk to your lender's hardship or workout team as soon as you can, and get your own advice in parallel.
The Small Business Debt Helpline on 1800 413 828 gives free, independent and confidential financial counselling to people in small business. For personal debt, the National Debt Helpline on 1800 007 007 does the same. If the business may not be able to pay its debts as they fall due, a conversation with a registered liquidator or restructuring practitioner should come before any new borrowing, and Moneysmart explains how free financial counselling works.
Can a non-bank or private lender refinance a covenant breach?
Sometimes. A non-bank or private lender may refinance a breached or repricing commercial facility where the borrower is solvent and the security, payout path and exit are acceptable. The assessment, term, cost and protections can differ materially from a mainstream bank facility.
Australian private credit is a sizeable, real-estate-heavy market under closer regulatory scrutiny. Check the lender or fund manager, AFCA membership where relevant, all fees and default terms, the security position and the repayment exit. The figures below are market context, not a quote or an approval indication.
| Market fact | What it is | Source and as at |
|---|---|---|
| Around $200 billion | The estimated size of the Australian private-credit market in assets under management, with roughly half of it real-estate related (the real-estate split is from this report). | ASIC REP 814, as at September 2025 |
| 22 managers, 52 funds, around $76 billion | The managers, funds and assets covered by ASIC's March-to-May 2026 private-credit survey, published as the sector faced tighter liquidity and emerging borrower stress. | ASIC update, published 18 June 2026 |
| Around 6 per cent | Non-bank lenders as a share of financial-system assets; the Reserve Bank has noted non-bank lending standards have eased for property developers. | RBA Financial Stability Review, as at March 2026 |
| From 13 July 2026 | Product data sharing obligations began for relevant non-bank lenders. Consumer data sharing starts later under the staged CDR timetable. | Consumer Data Right, current July 2026 |
These are market-context figures, not a rate, cost or approval indication for any facility. ASIC has kept poor private-credit practices as a 2026 enforcement priority, while product data sharing for relevant non-bank lenders commenced on 13 July 2026. Check the lender or fund manager, all fees and default terms, AFCA membership where relevant, security priority and the repayment exit. The non-bank commercial property lending guide covers the CDR change, and the private lending page explains facility structure. General market context only.
What should happen after the refinance or covenant reset?
Settlement or a signed waiver is not the end of the job. Confirm the old facility is closed, the land mortgage is discharged, relevant guarantees are released, and any general security or PPSR registrations that no longer secure an obligation are ended or amended. Then record every new covenant, reporting date, valuation review, interest-only expiry and maturity date.
The purpose is to stop a deadline-driven rescue from becoming the next deadline-driven rescue.
After settlement or reset
Check what happened to the guarantees
Refinancing or repaying the loan does not automatically remove every guarantee, mortgage, general security agreement or PPSR registration connected with the old facility. Ask the outgoing lender and your lawyer for written releases, then confirm the land-title and PPSR records reflect the agreed position, especially where multiple entities, properties or directors supported the debt.
Is interest still tax deductible if you refinance?
Usually, refinancing does not change interest deductibility when the replacement borrowing continues to fund the same business or income-producing use. Deductibility follows the use of the borrowed funds, not simply the property used as security or the name of the loan.
Mixed-purpose borrowings, redraws, capitalised interest and new cash released at refinance can change the result, so confirm the tracing with your accountant or the ATO. Also compare the total cost of moving, including valuation, legal, discharge and establishment costs. The refinancing entry explains the mechanics, and our note on what drives a commercial refinance rate covers the pricing inputs. General information, not tax advice.
The customer journey usually begins with the wording in a letter, not with a loan product: request for information, reservation of rights, covenant breach, credit management, non-renewal, interest-only expiry, maturity, default notice or demand. The next step is to identify the document and deadline, understand the lender's position, and decide whether the underlying problem is technical, valuation-based, cashflow-based or a solvency issue. The practical options are to cure the breach, negotiate a waiver or reset, inject equity, refinance, sell, or obtain restructuring advice; the right answer depends on the cause and the credible exit.
Key takeaway: control the document, the deadline and the evidence first. Choose the outcome before the product, run the lender and exit plans in parallel, and do not use new debt to hide insolvency.Frequently Asked Questions
A covenant breach can give the lender rights to waive, reset, reprice, require a paydown, accelerate the debt or enforce security, depending on the facility documents. A lender may negotiate first where the loan is performing, but there is no guaranteed order. Read the notice and documents with a lawyer, ask what cure or proposal the lender will consider, and build an exit plan in parallel. General information, not legal advice.
It means decisions have moved from the usual banker to a specialist team managing higher-risk or exit-bound facilities. The transfer is not enforcement by itself, but it usually means the lender wants closer reporting, a reset, a repayment plan or an exit. Ask who has authority, what information is required, what deadline applies and what outcome the team expects, then test a refinance or sale in parallel. General information only.
The notice and facility documents set the operative clock. A review request, reservation of rights letter, breach notice, default notice, maturity letter and statutory demand can carry very different consequences. Ask the lender to confirm every deadline and whether it will grant a written waiver or standstill; do not assume that a refinance application pauses the clock. Run the refinance in parallel: once valuation, credit and documentation are counted, a full refinance is measured in weeks rather than days. A statutory demand requires immediate legal attention. General information, not legal advice.
A reservation of rights letter records that the lender considers a breach or default may have occurred and preserves its contractual rights while discussions or repayments continue. It is not necessarily a demand or an enforcement decision, but it means the issue is formally on record. Acknowledge it, ask what cure or proposal the lender will consider, and obtain legal advice if the consequences are unclear. General information, not legal advice.
No. A covenant breach can be technical or ratio-based while the company continues paying all debts on time. Insolvency is a separate question about whether the company can pay its debts as they fall due. If the breach sits alongside arrears, unpaid tax, unpaid suppliers or an inability to meet upcoming debts, speak to a registered restructuring practitioner before taking on new borrowing. General information, not legal advice.
A replacement lender will usually ask for the current facility and notices, a payout statement, property and title information, current valuation evidence, financials or leases, bank statements, BAS and tax liabilities, details of all other debts and security, and a written explanation and exit plan. Owner-occupied properties rely more on trading cashflow; investment properties rely more on leases and rent. Requirements vary by lender.
It means the lender expects the facility to be repaid at or before a stated date and does not intend to keep it on the existing basis. This can be a commercial portfolio decision even when repayments are current. Get the date, payout requirements and any conditions in writing, then compare extension, refinance, paydown and sale options before the deadline limits the choice. General information only.
Sometimes, where the business is solvent and the proposed facility has sufficient equity or serviceability, a reliable payout path, acceptable security and a credible repayment exit. A breach or default will need to be disclosed and explained. A refinance should solve the underlying problem rather than only move the deadline; new borrowing is not a fix for insolvency. General information, not financial advice.
Start with the cause. A modest valuation-driven LVR gap may be solved by a paydown or covenant reset; a viable business facing lender exit may suit a refinance; and a loan with no affordable repayment or credible refinance exit may be better addressed through an orderly sale or restructuring advice. Compare net sale proceeds, total refinance cost, business continuity and guarantee exposure before deciding. General information only.
The answer depends on the guarantee, mortgages and security documents. Many commercial facilities include director guarantees and may also be secured by additional property, including a family home. A secured creditor may be able to appoint a receiver where its security permits, while land-enforcement notices and procedures can vary by state or territory. Refinancing or repaying the primary loan does not automatically release every guarantee or registration. Have a commercial lawyer identify the guaranteed obligations, secured property, enforcement path and required releases before the pressure point. General information, not legal advice.
What sources support this guide?
This guide is built on primary and government sources: ASIC guidance on business-purpose credit, commercial-loan disputes and receivership; the Banking Code and AFCA Rules; ASIC's private-credit reports; the Reserve Bank on corporate debt covenants and non-bank lending; the Corporations Act for statutory demands and directors' duties; the PPSR for ending security registrations; and government guidance on interest-only lending, tax deductibility and free financial counselling. Each regulatory point is linked beside the relevant answer.
| Source | What it supports | As at |
|---|---|---|
| ASIC INFO 101 and INFO 207 | Business-purpose credit sitting outside the National Credit Code, and the protections and limits that apply to commercial and small-business lending | 2020 to 2024 |
| ASIC REP 820, REP 814 and ASIC's June 2026 update | The size, supervision and current stress indicators in the Australian private-credit market, including ASIC's survey of 22 managers, 52 funds and around $76 billion in assets. | 2025 to June 2026 |
| RBA corporate debt covenants and Financial Stability Review | How lenders use covenants in Australia, and the note that non-bank lending standards have eased for property developers | 2025 to 2026 |
| AFCA small business | A commercial complaint must be against an AFCA member. AFCA defines a small business as fewer than 100 employees and, for complaints lodged from 1 January 2024, generally cannot consider a small-business credit facility above $6.3 million. Current Rules, exclusions and complaint timing still need to be checked. | 2024 to 2026 |
| Corporations Act 2001, sections 459E, 459G and 588G | The creditor's statutory demand process, the strict 21-day periods, and the director's duty to prevent insolvent trading | Current |
| Penalty Interest Rates Act 1983 (Vic) | The Victorian statutory penalty interest rate of 10 per cent a year, referenced as a fallback in many Victorian contracts | Current, unchanged since 2017 |
| Moneysmart and ATO | How interest-only lending works in general terms, and the general position on interest deductibility for business borrowing | 2026 |
| Consumer Data Right and the Banking Code of Practice | Product data sharing for relevant non-bank lenders from 13 July 2026, the later staged consumer-data timetable, and the subscriber-bank scope of the Banking Code. | Current July 2026 |
| ASIC INFO 54 and the PPSR | How a secured creditor may appoint a receiver under its security, and the need to end or amend a PPSR registration when the security interest no longer applies. | Current July 2026 |
| Small Business Debt Helpline and ASBFEO | Free small-business financial counselling and broader assistance with small-business disputes, including with a finance provider | 2026 |
Regulatory positions and market figures are summarised, not reproduced in full, and none of this is legal, tax or financial advice. The rules, reports and figures can change, and your own facility documents govern. Confirm the current position with your lawyer, your accountant or a registered practitioner before acting. For the wider set of property-finance guides, the property lending hub collects them in one place.
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