You are reading the financial covenants section of your term sheet. One of the conditions is the Minimum EBITDA covenant. Here is what it measures, why the bank includes it, and what to check before you sign.
What the bank is measuring
A minimum EBITDA covenant sets a floor on earnings (EBITDA) that must be maintained, typically tested quarterly on a trailing twelve-month basis.
What this means: Revenue shortfalls or cost overruns that push EBITDA below the floor trigger breach risk. This limits your ability to absorb temporary margin compression or invest heavily in growth.
What to check
Often set at 75–95% of projected business plan — check the headroom
Trailing twelve months: one bad quarter takes 12 months to roll off
EBITDA add-backs may be negotiable — restructuring costs, one-offs, etc.
How to negotiate
Most covenant terms are negotiable at the term sheet stage, before the legal documentation is drawn up. With the Minimum EBITDA covenant, focus on the definition, the threshold, the testing frequency, and the cure period. Ask your relationship manager what flexibility exists, and have your accountant confirm the level is one your business can hold comfortably. Read every line.
What to do next
The fastest way to see whether a Minimum EBITDA covenant — and every other condition — is in your term sheet is to let Credia read it for you. Upload the PDF and you get every covenant identified and explained, in plain language, in under two minutes.
Analyse your term sheetFrequently asked questions
What is a Minimum EBITDA covenant?
A minimum EBITDA covenant sets a floor on earnings (EBITDA) that must be maintained, typically tested quarterly on a trailing twelve-month basis.
What happens if you breach a Minimum EBITDA covenant?
Revenue shortfalls or cost overruns that push EBITDA below the floor trigger breach risk. This limits your ability to absorb temporary margin compression or invest heavily in growth.
Can you negotiate a Minimum EBITDA covenant?
Most covenant terms are negotiable at the term sheet stage, before the legal documentation is drawn up. With the Minimum EBITDA covenant, focus on the definition, the threshold, the testing frequency, and the cure period. Ask your relationship manager what flexibility exists, and have your accountant confirm the level is one your business can hold comfortably. Read every line.