2 min read
Reading your facility agreement before there is a problem
Most commercial loan agreements contain financial covenants — minimum turnover, minimum EBITDA, or maximum leverage ratios — that the borrower must maintain throughout the term. Review your facility agreement now, not when a covenant is at risk of breach. Know what triggers your lender has the right to act on, and what notice periods apply.
A material adverse change (MAC) clause is also common: it allows the lender to call the loan if there is a significant deterioration in the borrower's financial position. Understand whether your agreement contains one and how it is defined.
Contact your lender before missing a payment
The single most effective action a company director can take when revenues fall is to contact the lender's relationship or arrears team before a payment is missed. Lenders generally prefer to restructure a facility over enforcing security — enforcement is costly and time-consuming for them too. An early, honest conversation significantly improves the range of options available.
Prepare a concise written summary: current revenue versus projections, the cause of the shortfall, your expected recovery timeline, and what relief you are requesting. A lender who receives a structured proposal is in a very different position to one chasing an unexplained missed payment.
Formal forbearance and restructuring options
If the lender agrees to provide temporary relief, this will be documented in a forbearance agreement or a formal loan variation. Typical terms include: a payment holiday (interest-only for a defined period), a reduced monthly payment with the shortfall capitalised onto the balance, or an extended term to lower monthly obligations. These are negotiated outcomes — not automatic entitlements — and depend on the lender's assessment of your recovery prospects.
Independent advice and insolvency awareness
If turnover has fallen severely and the company is approaching insolvency, directors have legal duties that override negotiations with any single lender. Take independent advice from a licensed insolvency practitioner or a solicitor specialising in corporate restructuring. Acting to prefer one creditor over others when insolvent can expose directors to personal liability. The lender relationship matters, but your legal duties as a director matter more.
Frequently asked questions
Can a lender demand immediate repayment if my revenue drops?
Only if your facility agreement contains a MAC clause or a financial covenant that has been breached — and even then, most agreements require the lender to issue a notice and allow a remedy period before calling the loan. Read your agreement carefully and take legal advice if you receive a formal notice.
Will a payment holiday be recorded on our company credit file?
The reporting treatment varies by lender and the type of arrangement. Formally agreed forbearance is typically reported differently from a missed payment. Confirm the credit reporting treatment explicitly in writing as part of any forbearance agreement.
Funding for UK limited companies
Credicorp lends to your company, not to you personally — short-term working capital with no personal guarantee. See what your business could access.