Glossary

Restrictive covenant (finance)

A restrictive (negative) covenant limits what you can do while a loan is outstanding — extra borrowing, dividends, asset sales — to protect the lender. Breaching one can trigger default.

2 min read

Limits borrower actionsProtects lender

Debt/dividends/asset salesBreach = default risk

Definition

A restrictive covenant (or negative covenant) is a loan condition restricting borrower actions — capping additional debt, dividends, asset disposals or acquisitions — to safeguard the lender’s position. It complements financial covenants and a negative pledge.

In plain terms

It is a list of "you may not, without our consent". Breaking one is an event of default even if every payment is on time.

Why it matters for your company

Restrictive covenants can quietly limit your strategic freedom — dividends, growth deals, further finance. Read them before you sign. Credicorp keeps covenants light on its core term products. See financial covenants.