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Supporting your business with secured lending

A guide for now and the future

Let’s be clear. These are worrying and uncertain times for lenders and borrowers. I have first-hand seen the impact on business and not only requests made from high street retailers, but also businesses big and small across all sectors for rent holidays.

From a borrowers perspective, such requests are unlikely to qualify for a default on an otherwise performing loan. Why? Firstly, we need to look at financial covenants.

These are the conditions of a loan agreement. They are the promises by the management of the borrowing firm to adhere to certain limits in the firm's operations.

Key things you need to ask yourself include:

  • Were covenants calculated against historic performance or were they also looking forward?
  • How much head room was built into the covenants level as against expected financial performance at the time they were set?
  • Are there any cure rights? If so, are you or your stakeholders in a position to exercise those?

Covid-19 does not automatically equal a rental break.

Covid-19 will not trigger or constitute an event of default, but significant deterioration in trading performance effecting a business’ ability to meet obligations under its loan arrangements may do so.

The future

Forward looking covenants need to be considered when;

  • there is likely to be any pressure on rental income from any defaulting tenants

 or

  • tenants request a rent holiday

Naturally this has an effect to service the loan from the lender.

Lenders consent will also be required from borrowers when considering tenants request to reduce rent, as many loan agreements restrict this without lenders permission.  

How will valuations work?

The impact to asset value is less certain.

It seems inevitable to me that there will be an impact on assets as market conditions deteriorate. I have come across some valuations in recent weeks with caveats due to the impact of Covid-19 which are having an effect on market values.

The team and I are with you all the way to navigate financial challenges and find new ways through them. Find out how - call us on 01274 850 800 or email law@schofieldsweeney.co.uk

About the Author

Manjit Virdee

Partner

Manjit covers a broad range of commercial property work; but specialises and leads the firms Secured…

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