LENDING GLOSSARY
Covenant
Loan Covenant
A contractual promise requiring or restricting certain borrower actions.
What does Covenant mean?
A contractual promise requiring or restricting certain borrower actions. Professionals may calculate, document or apply this concept differently depending on the transaction, accounting method, lender policy and governing documents. Borrowers should confirm the precise definition used in any term sheet or agreement.
Covenant in context
A loan may require the borrower to maintain at least 1.20x DSCR.
Why it matters in financing
Covenant can influence how a lender, investor or advisor evaluates risk, pricing, structure, repayment capacity or transaction economics. It should be considered together with the complete financial picture rather than used alone.
Related lending terms
Educational information only. This definition is general, may not match a particular lender or contract, and is not financial, accounting, tax or legal advice.