Covenant
Alle Begriffe
What is a covenant?
Short answer: A covenant is a promise in a loan agreement or bond document that requires the borrower to meet agreed financial or operating conditions.
Covenants protect lenders by creating early warning signals and control rights before a borrower misses a payment. For borrowers, they define the practical room to operate while debt is outstanding.
Common types of covenants
- Financial covenants: Metrics the borrower must maintain, such as debt service coverage, interest cover, leverage, minimum liquidity, or current ratio.
- Affirmative covenants: Actions the borrower must take, such as providing management accounts, keeping insurance in place, paying taxes, and maintaining permits.
- Negative covenants: Actions the borrower cannot take without consent, such as taking on more debt, selling material assets, paying dividends, or changing control.
Why covenants matter
A covenant package can be as important as the interest rate. It determines how much flexibility the company has if trading softens, working capital moves against plan, or an acquisition opportunity appears.
Verwandte Begriffe
Adjusted EBITDA
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Angel Investors
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Anti-Dilution Provision
An anti-dilution provision is a clause in an investment agreement that protects an investor from dilution of their ownership percentage in the event that new shares are issued at a price lower than the investor originally paid. It is commonly included in venture capital and private equity agreements.
Bootstrapping
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Bridge Loan
A bridge loan is a short-term loan used to meet immediate financing needs while waiting for more permanent funding. It serves as a temporary solution to bridge the gap between the need for funds and the availability of long-term financing.
Cap Table
A Cap Table, or Capitalization Table, is a detailed spreadsheet or document that outlines the equity ownership, types of shares, and ownership percentages of a company. It includes information on founders, investors, and employees, as well as the dilution of shares over time through various funding rounds and option grants.
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