Credicorp

Covenant

A covenant is a promise or condition written into a loan agreement that the borrower undertakes to keep for the life of the facility. Covenants go beyond the duty to repay: they can require the borrower to do certain things, refrain from others, or maintain particular financial measures. Breaching a covenant can be an event of default in its own right, even where payments are up to date.

Positive covenant: A promise to do something — for example, to provide accounts on time.
Negative covenant: A promise not to do something — for example, not to take on further security.
Financial covenant: A requirement to maintain a financial measure, such as a ratio.

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Why lenders use covenants

Covenants give a lender early visibility and some control over the borrower's conduct, so problems can be addressed before they threaten repayment. They are more common in larger or longer-term facilities than in simple short-term lending. A borrower should read any covenants carefully, because breaching one can have the same consequences as missing a payment.

Default A default is a breach of a credit agreement — most often missed payments — that a lender formally records once the breach reaches a defined threshold… Business loan A business loan is borrowing taken out in the name of a company or LLP rather than an individual, repaid over an agreed term. Short-term business loans… Key Information Sheet A Key Information Sheet is a pre-contract summary that sets out the headline terms of a facility — the cost, the repayments and the key conditions — so a… Forbearance Forbearance is the temporary arrangements a lender offers a borrower in financial difficulty — such as reduced or paused payments — to help them recover… /legal/vulnerability/ How Credicorp, a UK business lender, supports customers going through a difficult time — vulnerability policy and support routes. Flat rate A flat rate charges interest on the original amount borrowed for the whole term, rather than on the reducing balance. It can look cheaper than it is… Limited liability Limited liability means the owners of a company or LLP are not personally responsible for its debts beyond what they have agreed to contribute — their… Due diligence Due diligence is the set of checks a lender carries out before and during a lending relationship — confirming the borrower is genuine, understanding its… Companies House Companies House is the UK's registrar of companies. It incorporates and dissolves limited companies and LLPs, and maintains the public register of company… Sanctions Sanctions are legal restrictions that prohibit dealing with certain named individuals, entities or regimes. Lenders screen borrowers against sanctions… Vulnerable customer A vulnerable customer is someone whose circumstances make them less able to manage a financial relationship or more at risk of harm. Good lenders identify…

Covenants and default

Because a covenant breach can be an event of default, it can trigger the same rights for a lender as a missed payment — including, depending on the agreement, demanding the balance or ending the facility. This is why the events of default in an agreement, not just the payment terms, deserve close attention before signing.

Covenants and Credicorp

Credicorp's short-term business lending to UK limited companies and LLPs is designed to be simple and brief, so its agreements are not laden with the financial covenants found in complex facilities. The events of default that do apply are set out plainly in the agreement. Credicorp is an independent UK lender, not affiliated with Credicorp Inc of Peru, Credit Corp of Australia, or any other Credicorp entity outside the United Kingdom (Company No. 16093826; ICO ZC157682).

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