Debt mirrors captivity. It is the baggage that limits your freedom at all levels. Debt covenant is an explicit and detailed version of debt that implies to a borrower. To give it a corporate and legal flavor, the agreement of Debt covenant describes in detail what obligations the borrower has to meet with until he is able to repay the debt completely.

Consider you giving your car to your bestie with checklists to take care of. It may include To-Do List like keeping a petrol tank full, obeying traffic rules (positive debt covenants). It may also include a Not To Do list like No rash driving, No drink & drive (negative debt covenants). Similarly, a Debt or Loan Covenant is a formal debt agreement between a lender and borrower implying certain obligations that need to be met by the borrower. In other words, a debt covenant or loan covenant is a set of rules framed by the lender for the borrower to follow religiously.

Any form of debt comes with predetermined obligations. Debt comes at the cost of premium price charged by the borrower to the lender for having him use that debt since the lender wanted to use it desperately. It can also be defined as a promise to take certain actions (affirmative covenants) or to refrain from taking certain actions (negative covenants)

To read more in detail about the examples of Debt covenants click below:

https://www.finmargin.com/debt-covenants/

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