Affirmative covenants are borrower obligations to perform specific actions during the life of a loan or agreement—not merely avoid bad behavior.

How it works

Venture debt term sheets pair affirmative covenants with negative covenants (things you cannot do, like take on senior debt). Affirmative items often include delivering monthly KPI packages, annual audited statements once material, maintaining D&O insurance, and notifying the lender of material lawsuits. Preferred stock can include lighter affirmative duties—information rights to investors.

Compliance is operational: finance calendar reminders, not just legal review at signing. Waivers are possible if you miss a deadline, but lenders charge fees or tighten terms.

Why it matters

• Founders: Assign covenant compliance to a owner in finance ops before you draw debt.
• Investors: Covenant breaches signal operational sloppiness even when product metrics look fine.
• Operators: Automate reporting packs from your accounting system to hit covenant dates.

Common mistake

Assuming only cash-based covenants matter. Missing an insurance certificate upload can technically default the facility while revenue grows.

Related ideas

Negative covenants, financial covenants, venture debt, and information rights in term sheets.