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Definition
A covenant breach occurs when a borrower fails to comply with an undertaking in the loan agreement — a financial covenant such as a minimum cover ratio, or an information covenant such as filing accounts by a date. It can constitute an event of default independent of the repayment record.
In plain terms
You can be up to date on payments and still be in breach — by tripping a ratio or missing a reporting deadline. The lender then has options.
Why it matters for your company
Breaches often trigger a conversation, higher pricing or, at worst, a demand. Know your covenants and monitor them. See loan covenants.
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