A covenant is a term in a loan agreement that sets out something the borrower agrees to do, or to refrain from doing, while the facility is in place. Covenants are part of how a lender and borrower set clear expectations from the start.
Types of covenant
- Positive covenants — things the borrower agrees to do, such as providing information when asked.
- Negative covenants — things the borrower agrees not to do without consent.
- Reporting covenants — agreeing to share certain information about the business over time.
Why covenants exist
Covenants help both sides. They give the lender comfort that the agreed basis of the lending continues to hold, and they give the borrower clarity about what is expected. Keeping to the covenants helps the relationship run smoothly.
If circumstances change and a covenant becomes hard to meet, the best step is to talk to your lender early rather than wait.
Credicorp lends only to UK limited companies and LLPs for business purposes. Any terms that apply to your Credicorp Flex or Credicorp Slice facility are set out in your agreement before you accept, so you can see exactly what you are committing to.
See also: Keeping your company details current with us during the term, What is a promissory note? and Asking for extra time or plain language on calls.