You've breached your loan covenants. What happens next?

Read the letter as if it is a deadline

A covenant breach letter can feel like a warning shot, but it is really a signal that the bank wants answers now. Commercial loans have the lowest level of legal protection under ASIC’s guidance, and disputes often turn on the loan terms themselves, including consequences of default and other conditions in the agreement. ([asic.gov.au](https://asic.gov.au/about-asic/contact-us/reporting-misconduct-to-asic/disputes-about-commercial-loans/))

Start by checking exactly what the bank says you breached. The issue may be a financial ratio, a reporting obligation, insurance, or another condition in the facility. ASIC’s small business loan report notes that financial indicator covenants can be used as default triggers, and that some banks apply a materiality threshold before treating a breach as default. ([download.asic.gov.au](https://download.asic.gov.au/media/4676255/rep565-published-15-march-2018.pdf))

Ask the bank for a meeting straight away

Do not let the breach sit in your inbox. Call the relationship manager named in the letter and ask for a meeting as soon as possible. ASIC notes that commercial loan disputes often arise when borrowers get into difficulty making repayments, and that consequences of default can become a live issue in that relationship. ([asic.gov.au](https://asic.gov.au/about-asic/contact-us/reporting-misconduct-to-asic/disputes-about-commercial-loans/))

You are not asking the bank to ignore the problem. You are showing that you are serious about dealing with it. A quick call can keep the file with the relationship team longer, which usually leaves more room for negotiation than silence does. If the bank thinks you are hiding, it is more likely to move the matter up the chain. ([asic.gov.au](https://asic.gov.au/about-asic/contact-us/reporting-misconduct-to-asic/disputes-about-commercial-loans/))

Source: Official guidance

Take your own numbers to the table

Before the meeting, gather current management accounts, aged debtors, work in progress, loan statements and a realistic cash flow forecast. Business.gov.au defines a forecast as a list of future financial transactions, and that is exactly what the bank needs to see: not hope, but a clear view of likely cash over the coming weeks and months. ([business.gov.au](https://business.gov.au/finance/financial-tools-and-templates/key-financial-terms))

If the breach is about a ratio, check the calculation yourself. If it is about a missed report or a delayed update, record the dates and the documents involved. ASIC’s report says some banks use financial indicator covenants to monitor credit risk, while others treat a breach as a review event rather than immediate enforcement. That means the numbers and the wording both matter. ([download.asic.gov.au](https://download.asic.gov.au/media/4676255/rep565-published-15-march-2018.pdf))

Offer a fix, not an explanation

The bank does not need a speech about how hard trading has been. It needs a plan it can assess. That might be an equity injection, an asset sale, a revised repayment profile, tighter reporting, or a short standstill while you complete a larger contract. Commercial loan disputes commonly involve repayment arrangements and rights under the agreement, so a proposed path forward belongs in writing. ([asic.gov.au](https://asic.gov.au/about-asic/contact-us/reporting-misconduct-to-asic/disputes-about-commercial-loans/))

Keep the proposal specific. Say what will be paid, when it will be paid, and what supports the offer. If the breach points to deeper cash pressure, be honest about that. A lender is more likely to engage with a realistic restructure proposal than with a vague promise that business will improve. The point is to reduce risk, not to sound confident. ([download.asic.gov.au](https://download.asic.gov.au/media/4676255/rep565-published-15-march-2018.pdf))

Get advice before you sign anything

Do not agree to new security, penalty interest, revised covenants or a deed of variation without independent advice. A document that looks like a simple fix can create fresh obligations or personal exposure. ASIC’s commercial loan guidance makes clear that these disputes can involve rights under the loan agreement and consequences of default, so the paperwork deserves a careful review. ([asic.gov.au](https://asic.gov.au/about-asic/contact-us/reporting-misconduct-to-asic/disputes-about-commercial-loans/))

If the business is under wider strain, the breach may be part of a bigger restructuring problem. CRP coordinates independent qualified professionals who can assess the numbers, help you prepare a lender response, and discuss debt restructuring options for a construction business under pressure. If you have received a breach letter today, bring the letter, the facility documents, the latest accounts and your forecast, and call CRP today about debt restructuring. This article is general information only and is not legal or financial advice. ([asic.gov.au](https://asic.gov.au/about-asic/contact-us/reporting-misconduct-to-asic/disputes-about-commercial-loans/))