Opening summary

When a covenant is breached, a prompt, organized waiver request—backed by clear numbers and a realistic recovery plan—often keeps you in good standing and reduces the chance of default remedies. Lenders are usually open to waiver discussions when borrowers show early communication, credible documentation, and practical steps to return to compliance (see related guidance on enforcement and breach responses).

Why waivers matter

  • Prevents technical default that can trigger higher rates, penalties, or acceleration.
  • Preserves access to credit and business operations while you correct short‑term issues.
  • Signals good-faith cooperation, which matters for future refinancing.

(In my work advising small and mid‑market borrowers, early, transparent negotiation has converted many covenant breaches into short, structured cures without escalating to defaults.)

What lenders typically want to see

  1. Clear reason for the breach (cash shortfall, one‑time charge, seasonal variance).
  2. Recent financials and reconciliations (monthly cash‑flow, bank statements, updated forecasts).
  3. A credible remediation plan with milestones and timing.
  4. Proposals that protect lender value (fees, temporary higher covenants, additional collateral, DSRA).

Documentation checklist (prepare before you call)

  • Latest interim financial statements (P&L, balance sheet).
  • 13‑week cash‑flow forecast showing the path to cure.
  • Explanation memo: cause, actions taken, expected recovery date.
  • Supporting contracts, invoices, or evidence of one‑time items.
  • List of requested relief and proposed covenant terms (duration, metrics, reporting).

How to structure the negotiation (step‑by‑step)

  1. Communicate early and in writing: call your relationship officer and follow up with a one‑page memo summarizing the issue and next steps.
  2. Propose limited, lender‑protective fixes: e.g., a 3–6 month covenant holiday, temporary ratio adjustments, or a covenant cure period tied to cash‑flow milestones.
  3. Offer compensation or protections: consent fees, prepayment restrictions, additional reporting, or a short‑term interest rate premium.
  4. Negotiate documentation: lenders will want an amendment or written waiver — confirm duration, reporting, and any triggers.
  5. Close and monitor: get the waiver in writing, calendar milestone reviews, and deliver promised reports.

Common waiver types you can request

  • Covenant holiday: lender waives the covenant for a fixed period.
  • Temporary ratio adjustment: lower the minimum DSCR or raised allowed leverage for a defined term.
  • Cure period: lender permits short additional time to return to covenant levels.
  • Amendment: permanent change to covenant language (rare and often requires pricing).

What lenders often require in return

  • A consent or amendment fee (one‑time).
  • Additional covenants or tighter reporting.
  • Personal guaranty expansion or additional collateral in some cases.
  • Short‑term interest step‑up until cure is achieved.

Negotiation tactics that work

  • Lead with facts, not emotion: lenders respond to credible numbers and realistic timelines.
  • Show alternatives evaluated: refinancing attempts, expense cuts, asset sales.
  • Keep the ask narrow and time‑limited: lenders prefer short, defined remedies rather than open‑ended relief.
  • Use relationship capital: if you have a history of timely reporting and clear communication, reference past performance.

Sample waiver request outline (one page)

  • Subject: Request for temporary waiver — [Covenant name], [Loan #]
  • One‑line summary of issue and requested relief (e.g., 3‑month waiver of interest‑coverage covenant).
  • Key facts (amounts, dates, financial impact).
  • Attachments: interim statements, 13‑week forecast, recovery milestones.
  • Proposed lender protections (fee, extra reporting, collateral).
  • Contact and next‑step request (meeting or term sheet).

Pitfalls to avoid

  • Waiting until after a formal default: early notice is often rewarded; hiding problems is not.
  • Asking for vague relief: lenders want specific durations and measurable milestones.
  • Failing to offer lender protections: a waiver must preserve lender economics or security.

When a lender refuses

  • Request a clear, written explanation of the denial and what financial thresholds would change their view.
  • Explore alternatives: short‑term bridge financing, factoring, asset sales, or a structured refinance.
  • If enforcement is imminent, seek legal counsel immediately to understand defaults and forbearance options.

Relevant resources and further reading

  • Negotiating loan covenants — practical asks and examples: “Negotiating Loan Covenants: What Small Businesses Can Ask For” (FinHelp).
  • How lenders enforce covenants and steps after a breach: “How Loan Covenants Are Enforced and What to Do If You Breach One” (FinHelp).
  • Practical cash‑flow testing and quarter‑end covenant preparation: “Managing Cashflow Covenant Tests in Quarterly Reporting” (FinHelp).

Authoritative references

Professional disclaimer

This article is educational and not legal or financial advice. For negotiation strategies tailored to your loan documents and jurisdiction, consult your attorney or financial adviser. In my experience advising borrowers, early preparation and lender‑focused solutions materially increase the chance of a favorable waiver.

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