36 covenant types
Leverage ratio
A leverage ratio limits your total debt to a multiple of EBITDA.
Debt-to-equity ratio
A debt-to-equity covenant limits total debt to a multiple of shareholder equity.
Interest coverage ratio
An interest coverage ratio (ICR) requires your EBIT to exceed interest expenses by a minimum multiple.
Debt service coverage ratio
A DSCR measures operating cash flow relative to total debt service (principal repayments + interest).
Fixed charge coverage ratio
An FCCR measures cash flow available to cover all fixed obligations: debt service, rent/lease payments, and sometimes CapEx.
Minimum EBITDA
A minimum EBITDA covenant sets a floor on earnings (EBITDA) that must be maintained, typically tested quarterly on a trailing twelve-month basis.
Solvency ratio
A solvency ratio covenant requires the borrower to maintain minimum equity as a percentage of total assets (Equity ÷ Total Assets).
Dividend restriction
A dividend restriction limits or prohibits distributing profits to shareholders during the loan term.
Additional debt restriction
A restriction on additional indebtedness requires lender consent before taking on new debt.
CapEx limitation
A CapEx limitation sets a maximum annual capital expenditure budget.
Change of control
A change of control clause triggers loan acceleration or mandatory repayment if ownership or management control of the borrower changes beyond a specified threshold.
Cross-default
A cross-default clause triggers a default under this loan if the borrower defaults on any other debt obligation — even with a different lender.
Reporting requirement
Reporting requirements specify the financial statements and certificates the borrower must deliver to the lender, including format, content, and deadlines.
Negative pledge
A negative pledge prohibits the borrower from granting security interests (mortgages, liens, pledges) over its assets to other creditors.
MAC clause
A Material Adverse Change (MAC) or Material Adverse Effect (MAE) clause allows the lender to call a default if a significant negative change occurs in the borrower’s financial condition, business, or prospects.
Senior leverage ratio
A senior leverage ratio limits senior secured debt (not subordinated or mezzanine) to a multiple of EBITDA.
Net debt cap
A net debt covenant measures total debt minus cash and cash equivalents.
Minimum working capital
A working capital covenant requires current assets minus current liabilities to remain above a specified threshold at all times.
Current ratio
A current ratio covenant requires current assets to exceed current liabilities by a specified multiple (e.g., 1.25:1).
Asset coverage ratio
An asset coverage ratio requires tangible assets to exceed debt by a specified multiple.
Cash flow covenant
A cash flow covenant requires minimum operating or free cash flow over a measurement period.
Acquisition restriction
An acquisition/merger restriction prohibits or requires lender consent for acquiring other businesses or merging with third parties.
Asset disposal restriction
An asset disposal restriction prohibits selling, transferring, or encumbering material assets without lender consent.
Tax compliance covenant
A tax compliance covenant requires the borrower to pay all taxes on time and provide proof of payment to the lender.
Collateral maintenance
A collateral maintenance covenant requires the borrower to maintain, insure, and preserve the value of pledged assets.
Pari passu
A pari passu clause requires the borrower’s obligations under the facility to rank at least equally with all other unsecured obligations.
Key person clause
A key person clause requires specific individuals (typically the founder, CEO, or key technical person) to remain actively involved in the business.
Mandatory prepayment
A mandatory prepayment clause requires the borrower to prepay part or all of the loan upon certain trigger events: excess cash flow above a threshold, asset sale proceeds, insurance proceeds, IPO or capital raise, or change of control.
Accounts receivable aging
An AR aging covenant limits the percentage of receivables outstanding beyond a threshold (e.g., no more than 15% of receivables > 90 days overdue).
Tangible net worth
A tangible net worth covenant requires the borrower to maintain a minimum level of equity after excluding intangible assets (goodwill, patents, capitalised development costs).
Insurance maintenance
An insurance maintenance covenant requires the borrower to maintain specified insurance coverage (property, liability, business interruption, key person) with the lender named as additional insured.
Affiliate transaction restriction
An affiliate/related-party transaction restriction requires all transactions with related parties (owners, family members, affiliated companies) to be at arm’s length terms.
Business scope restriction
A business scope or line-of-business restriction prohibits materially changing the company’s business model, entering new industries, or discontinuing core operations.
Payment routing
A payment routing or banking relationship covenant requires the borrower to maintain a minimum level of transaction banking (payments, receivables, salary payments) with the lending bank.
Hedging requirement
A mandatory hedging covenant requires the borrower to hedge a specified portion of interest rate or foreign currency exposure using derivatives (swaps, caps, collars) arranged through the lending bank or an approved counterparty.
Subordination requirement
A subordination covenant requires existing or future shareholder loans, vendor notes, or intercompany debt to be contractually subordinated to the bank facility.
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