Glossary
Covenant headroom
The gap between where the business actually sits and the covenant limit. Headroom is what keeps a bad quarter from becoming a bank problem.
In plain English
Headroom is the buffer between your actual position and the covenant line. If the facility requires DSCR of 1.25x and the business runs at 1.6x, the headroom is the earnings fall the business could absorb before it breaches.
Headroom is where growth plans live or die. A business running close to its covenants has no room to fund expansion, absorb a slow quarter, or take on the next facility. One running with real headroom can move.
Why a lender cares
Credit teams read headroom as resilience. Two businesses can both pass covenant today; the one with more headroom gets the better terms and the easier conversation next year. Our growth modelling maps headroom year by year in each scenario, because that path is what the next approval depends on.
Where this term takes you
Reading up because a deal or a facility is on the table? One call with Nicholas gets you a straight read on your numbers, free.
Book a call