You Broke a Loan Covenant. Now What?
You broke a loan covenant. Though not ideal, it happens. But should it? Technically, no because you should be monitoring your covenants. With monitoring, you’d know if you had an issue before a covenant was broken and could call your lender to give them a heads-up. Always remember: your lender doesn’t like surprises!
Understanding the underlying drivers of each covenant will be of enormous help such that if you do break one, you’ll be able to communicate the issue clearly to your lender, including whether it’s a temporary or ongoing problem and what you’re doing to resolve it. Having a plan to address the underlying issue can help mitigate the damage. Failure to do so may result in severe consequences including the lender terminating your relationship.
“Stuff happens.” Being proactive, providing transparency and clear communication are key to maintaining a healthy relationship with your lender.
About Celtic Capital
Companies looking for working capital to cover operating expenses, fund growth, increase buying power and take advantage of vendor discounts and rebates turn to Celtic Capital. With an appetite for the more complex transactions, Celtic Capital has a history of success in crafting creative, flexible asset based financing solutions from $500,000 to $5 million with no financial covenants.
As an independent lender, working with companies nationwide, Celtic Capital is willing and able to alter price and deal structure and expand lines of credit to handle its clients’ increased revenues; and when cash flow is an issue, will look toward providing an inventory facility to help offset lost cash flow.