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covenant definition - finance
The rules on a loan agreement that require certain financial conditions be met or prohibit other financial actions by the borrower. A covenant may limit how much additional debt can be issued, require financial targets such as sales and earnings to be met, limit the payment of dividends, and require that certain cash levels be maintained. If a covenant is violated, then the bank or loan issuer can require that the loan or note be immediately repaid.

Webster's New World Finance and Investment Dictionary Copyright © 2003 by Wiley Publishing, Inc., Indianapolis, Indiana.
Used by arrangement with John Wiley & Sons, Inc.

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