What is a Financial Covenant?

What is a Financial Covenant?

Covenants oblige borrowers to adhere to a set of conditions, typically in the form of a set of financial metrics and ratios. Here, Tim goes into further detail by outlining typical triggers, consequences and specific types.
Overview

Covenants are conditions in a borrowing document that ensure the borrower maintains certain financial ratios to assure the lender that they are, and will continue to be, financially able to repay them.

Key learning objectives:

  • Define covenants

  • Explain the purpose of covenants and what they prevent

  • Describe the different types of covenants

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Summary
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