Key Takeaways
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Loan covenants — such as debt service coverage and loan-to-value ratios — serve as early warning systems and management tools to safeguard financial stability.
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Private clubs must act quickly if a covenant is breached by submitting detailed waiver requests backed by forecasts, budgets and recovery evidence.
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Maintaining organized financial data, transparent governance and consistent cash flow enhances lender trust and supports favorable financing terms.
When your club looks to a bank for financing, the banker is evaluating more than just the numbers — they’re reading the story your financial statements tell. Loan covenants are part of the plot to that story, serving as both safeguards for lenders and management tools for clubs. They measure financial stability and provide early warnings of potential issues. Because covenants can be negotiable, club leaders should understand what they mean before signing any agreement to ensure they align with long-term goals.
Loan Covenants
The most common covenants include the Loan-to-Value (LTV) ratio which sometimes requires that the loan balance not exceed 80% of the property’s value and the Debt Service Coverage Ratio (DSCR) which reflects your ability to meet debt obligations from operations. Falling below the required DSCR or exceeding LTV limits can raise lender concerns and even trigger default clauses.
Even well-managed clubs can breach covenants due to unexpected events such as loss in revenues or unexpected increases in expenses. When that occurs, the club needs to act fast: identify the issue, contact your lender immediately and submit a written waiver request that explains the cause and outlines corrective measures. A thoughtful, well-documented plan — supported by budgets, forecasts and early signs of recovery — can help maintain trust and credibility with your lender.
Club Performance
Bankers pay close attention to indicators like membership demand, cash flow consistency, capital planning and governance. Clubs that perform well in these areas are viewed as lower-risk borrowers and often benefit from more favorable loan terms. To prepare for future financing, maintain organized and current financial information, including audited statements, internal reports, membership schedules and budgets. Demonstrating discipline and transparency not only streamlines loan renewals but also reinforces your club’s reputation for sound management.
Tactical Partnering
Ultimately, covenants should be seen not as restrictions but as valuable management tools. By treating your banker as a strategic partner, staying ahead of financial benchmarks and maintaining open communication, your club can build a relationship grounded in trust and stability — one that supports your mission and your members well into the future and one that will continue to have a great story to tell.
Contact Us
We welcome the opportunity to answer any questions you may have related to this topic or any other accounting, audit, tax or advisory matters for private clubs. Please reach out to your PKF O’Connor Davies client service team or:
Kerri Rawcliffe, CPA
Partner
krawcliffe@pkfod.com
Brooke Rossi, CPA
Director
brossi@pkfod.com
Amber Stone, CPA
Director
astone@pkfod.com