Glossary
Covenant
A financial condition attached to a facility that the business must keep meeting after settlement, such as a minimum DSCR or maximum leverage.
In plain English
A covenant is a promise written into the facility agreement that the business will stay within certain financial limits for the life of the loan. Common covenants include a minimum debt service cover ratio, a minimum interest cover ratio, and limits on additional borrowing or distributions to owners.
Covenants are tested periodically, usually against your financial statements each year or half-year. Breaching one does not automatically end the facility, but it hands the lender rights it did not have the day before: to reprice, to demand extra security, or in serious cases to call the debt in.
Why a lender cares
Assessors approve deals they expect to stay inside covenant with room to spare, not deals that scrape past on day one. Showing covenant compliance under stress, before the lender asks, is one of the strongest signals a submission can send. Our models test every covenant at sensitised rates and show the headroom explicitly.
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