How to Handle Your Annual Loan Reviews


FOR COMMERCIAL PROPERTY INVESTORS with significant borrowings, one of the biggest headaches that you can encounter when dealing with banks are the annual reviews and short loan terms.

These facilities are costly in accounting expenses, time and money, particularly for sophisticated investors with more complex borrowing structures.

When there are multiple (or large) properties involved, the associated costs can be high.

Associated Risks

There also can be significant risks that annual reviews can result in undesirable changes to loans terms, such as increases in interest rates, forced reduction of principal, or at worst, discontinuing of the loan.

These risks are particularly troubling in times where there have been issues such as tenants leaving, or a down year in financials for the investor.

Following the GFC with a decline in property values, many bank clients were caught short upon their annual reviews when Loan Value Ratios were deemed too high and this resulted in a lot of pain.

For this reason, I believe it’s worth considering all of your options when choosing a commercial loan product.

This is particularly true for commercial investment, where there are some interesting loan products outside of the banking system that don’t require annual reviews and can be as cheap as dealing with banks.

I would suggest looking at a non-bank option to compare with the banks, although depending on the deal, a bank may still be the most suitable lender.

Getting The Best Loan

If you are dealing with banks, some tips for ensuring you get the best loan are:

  • Look at the whole facility and not just the rate.
  • Ask about how onerous the annual reviews and reporting are going to be.
  • If possible go for a reasonably long loan term so you don’t have to re-apply too quickly (if this coincides with a property being vacant, it may not be so easy to roll over the loan).
  • Where possible, do not cross use securities as collateral, as this will leave your portfolio more exposed if relations with your bank did sour.
  • It’s much easier to refinance or payout a single loan against one property, than it is to payout a facility crossed against multiple properties.

Bottom Line: Sticking to these principles will go a long way towards protecting your portfolio with a sensible debt strategy based on long term benefit rather than just short term interest rate savings.