2 min read
Definition
A net worth covenant is a term in a loan agreement obliging the borrower to maintain net assets (assets minus liabilities) above a set level. Breaching it can trigger a default even if payments are being met, because it signals weakening financial health.
Why it matters
Covenants let a lender act before missed payments occur. Understanding any covenant before signing avoids a technical breach. See DSCR, which also often appears as a covenant, and affordability.
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