Model payment schedules for fixed, ARM, balloon, and SBA loans. See exactly when your balloon is due and what a rate change at refinance does to your payment.
At balloon maturity (or any point), what would a new rate do to your payment? Model it below.
| # | Date | Payment | Principal | Interest | Balance |
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Calculate your Debt Service Coverage Ratio and model what happens when a bank converts your line of credit to a term loan — one of the most common workout scenarios.
What every business borrower should know about loan covenants, what triggers a workout, and how to navigate — or better yet, never reach — the bank's special assets group.
Every bank has a department known by different names: Special Assets, Problem Loans, Workout, or Credit Resolution. When your loan is transferred there, it signals that the bank has classified your credit as having elevated risk. This is not an automatic path to foreclosure — but it does mean the rules of your relationship have changed significantly.
Covenants are contractual performance requirements built into your loan agreement. They protect the bank by giving them early warning — and the right to act — before a loan goes bad. Read every covenant before you sign. Ask your banker what happens if you breach each one.
| Covenant | Typical Threshold | Why Banks Require It | Risk If Breached |
|---|---|---|---|
| Minimum DSCR | ≥ 1.20x or 1.25x, tested annually | Ensures the business generates enough cash flow to service all debt. The single most important covenant on most commercial loans. | High — Technical default, potential loan acceleration |
| Maximum Leverage (D/TNW) | ≤ 3.0x to 4.0x depending on industry | Limits how leveraged the business can become. Excessive debt relative to equity means the business is fragile and dependent on continued revenue growth. | High — Often triggers with DSCR simultaneously |
| Minimum Current Ratio / Working Capital | ≥ 1.10x or ≥ $X working capital | Ensures the business can meet short-term obligations. Important for contractors, retailers, and seasonal businesses where cash flow timing varies. | Medium — Often negotiable with explanation |
| Minimum Net Worth / Tangible Net Worth | ≥ $X (often initial net worth) | Prevents owners from draining equity through excessive distributions. Maintains a floor of owner skin-in-the-game. | Medium |
| Maximum Capital Expenditures | ≤ $X annually without bank approval | Prevents large unplanned equipment purchases from straining cash flow or creating undisclosed liens on assets. | Lower — Often waivable |
| Covenant | Typical Requirement | Why Banks Require It | Risk If Missed |
|---|---|---|---|
| Annual Financial Statements | CPA-prepared (reviewed or audited) within 120–180 days of fiscal year end | Primary source of covenant testing. Banks cannot monitor performance without financials. Missing this deadline is one of the most common covenant violations. | High — Repeated missed deadlines = watch list |
| Quarterly / Monthly P&L | Company-prepared, within 30–45 days of quarter end | Early warning system between annual statements. Required on larger loans, higher-risk loans, or when a borrower is on the watch list. | Medium |
| Annual Personal Financial Statement | Guarantor(s), updated annually | Bank monitors guarantor's net worth and liquidity. A deteriorating personal financial statement can signal business stress before financials reflect it. | Medium |
| Tax Return Copies | Business and personal, within 30 days of filing | Validates financial statements. Banks compare tax returns to company-prepared financials for consistency. Large discrepancies raise red flags. | Medium |
| Accounts Receivable / Payable Aging | Monthly or quarterly depending on loan type | Critical for lines of credit — confirms the AR securing the line is current and collectible. Required for borrowing base calculations. | High — Can freeze line availability |
| Covenant | What It Restricts | Why Banks Require It |
|---|---|---|
| No Additional Debt Without Approval | Cannot borrow from other lenders or take on new debt above a threshold without bank consent | Protects the bank's lien position and ensures new debt doesn't strain DSCR. Violating this can be grounds for immediate acceleration. |
| No Asset Sales Without Approval | Cannot sell collateral or major business assets without bank consent | Prevents a borrower from selling assets that secure the loan. Bank must approve and typically requires proceeds be applied to the loan. |
| No Change of Ownership | Change of control, sale of majority interest, or death of key principal triggers review or acceleration | The bank underwrote the existing ownership and management. New owners may not have the same creditworthiness or operational expertise. |
| No Mergers or Acquisitions | Cannot acquire another business without bank approval | An acquisition could dramatically change the business's risk profile, debt level, and cash flow — all without the bank's knowledge. |
| Limits on Owner Distributions | Cannot distribute more than a set amount annually, often tied to DSCR compliance | Ensures owners don't drain the business of cash when financial performance is stressed. Protects the bank's repayment source. |
| Key Man Life Insurance | Must maintain life insurance on key principals with bank as beneficiary | If the business is dependent on one person, their death could destroy the business. Insurance ensures the loan can be repaid if the key man dies. |