Glossary term

Covenants

A loan covenant is a condition that requires the borrower to fulfill certain conditions, forbids the borrower from undertaking certain actions, or possibly restricts certain activities to circumstances when other conditions are met. Typically, violation of a covenant may result in a default on the loan being declared, penalties being applied, or the loan being called. Covenants are undertakings given by a borrower as part of a term loan agreement. Their purpose is to help the lender ensure that the risk attached to the loan does not unexpectedly deteriorate prior to maturity.

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