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A bank loan covenant or debt covenant is a financial covenant requiring a borrower, in this case your Company, to meet a set of financial thresholds to satisfy liquidity requirements necessary to use and pay back the loan. Each bank has its own unique set of requirements, making it difficult for companies with multiple lenders to manually produce the bank reports with an reporting tool.
If you don’t meet the thresholds of your bank loan covenant, violations can have costly repercussions. For one, the bank can increase the previously agreed up interest rate, which in the face of rising interest rates, can dramatically increase the cost to borrow.
Terms of the loan are also subject to change, including a reduction in the available line of credit. The inability to service debt based on the terms will negatively impact your company credit score as well, making it more difficult to borrow in the future.
Most CFOs and finance executives are focused on producing the necessary bank report and meeting the covenant requirements. However, having the means to forecast the metrics and financial statements will have a profound impact on your ability to be proactive in guiding budget owners' allocation of resources and cash conservation efforts.
Navigating the world of finance can be a challenge for any leader, regardless of experience level. See our list of best practices and things to avoid to be a successful finance leader.
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Unlike your monthly management or board report packages, banks have specific requirements that make manual consolidation and report generation an error-prone hassle. Ensure you cover margin and your forecasted cash flow is on track to meet each banks covenants.
Get a personalized demo from one of our finance experts and see how our solutions can rapidly transform your Finance Function.
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