# Covenant

*Corporate Finance & M&A — Finicade finance glossary*

A covenant is a promise in a loan agreement — to keep leverage below a level, coverage above one, or not to sell key assets. Its function is early warning: a breach hands lenders leverage to renegotiate long before a payment is actually missed. Maintenance covenants are tested every quarter; incurrence covenants only bite when the borrower takes a new action.

**Also known as:** debt covenant, financial covenant, maintenance covenant

**Related terms:** [Covenant-Lite](https://finicade.com/glossary/covenant-lite), [Interest Coverage Ratio](https://finicade.com/glossary/interest-coverage-ratio), [Term Loan B](https://finicade.com/glossary/term-loan-b), [Credit Risk](https://finicade.com/glossary/credit-risk), [Default](https://finicade.com/glossary/default)

Source: https://finicade.com/glossary/covenant