What are Debt Covenants?

Unlike equity investors, lenders will require Covenants. Covenants are effectively a promise from the company to meet specific metrics, like maintaining defined performance thresholds (e.g., a minimum amount of revenue or cash flow).

Setting those thresholds starts with reviewing a company’s prepared forecast. Unlike VCs who will invest behind 10x year-over-year growth projected out to infinity, lenders will need something a bit more realistic. Your projections will be used to set your covenants. So tone down the bombast.