Covenant strategy

Refinancing where the tenant covenant is weak

Weak covenant doesn't kill a commercial refinance — it just narrows the lender panel and adjusts pricing. The specialist commercial market underwrites on property, income and covenant together, not just one.

Audience: Commercial investors

Situation: Your current lender is nervous about the sitting tenant — SME with limited accounts, short lease, or an unrated covenant — and the refinance is stuck.

Primary: Commercial Loans

The situation

High-street commercial lenders default to strong covenant assumptions. Where the tenant is an SME, unrated, or on a short lease, they either decline or offer punitive terms. Specialist lenders assess more holistically.

How we approach it

We route these deals to lenders that price for the situation — sometimes a slightly lower LTV and higher rate is much better than being unable to refinance at all. Rent-deposit structures and personal guarantees sometimes bridge the gap.

What that looks like in practice

Specialist commercial lenders that underwrite unrated covenants
LTV usually 60-65% where covenant is weak (vs 70-75% strong)
Rent deposit or PG structures to strengthen the deal
Short leases addressed with re-gearing pre-refinance where possible
Owner-occupier conversion route if lease is ending

Typical timeline

Week 1-2
Tenant covenant, lease, property assessed together.
Week 3-6
Application, valuation, credit committee.
Week 6-10
Offer, completion.

Common questions

What if the tenant lease is expiring?

Re-gear before refinance where possible — a fresh 5-10 year lease transforms the deal. Owner-occupier conversion is the other route if lease is genuinely ending.

Are personal guarantees always needed?

For weak-covenant refinances, often yes, at least limited. We negotiate to sensible caps.

Vacant possession — can I still refinance?

Yes, at lower LTV and higher rate. Realistic re-letting plan matters more than the vacancy itself.