---
title: "What Is Affirmative Covenants?"
term: "Affirmative Covenants"
description: "Affirmative covenants are contractual promises to do something—maintain insurance, file financial statements, pay taxes—required in loan agreements, venture debt, and some preferred stock terms."
date: 2026-07-25T00:00:00.000Z
updated: 2026-07-25T00:00:00.000Z
topics: ["venture-capital"]
source: https://venturecapitaltracker.com/glossary/affirmative-covenants
---

# What Is Affirmative Covenants?

> Affirmative covenants are contractual promises to do something—maintain insurance, file financial statements, pay taxes—required in loan agreements, venture debt, and some preferred stock terms.

**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.

## FAQ

### What are affirmative covenants in simple terms?

Rules that say you must take certain actions: send monthly financials, keep key-person insurance, stay current on payroll taxes, or maintain IP registrations. They are the 'do this' list in a credit agreement.

### Why do affirmative covenants matter?

Lenders and some investors use them to monitor health. Violating a covenant— even a paperwork one—can default a loan or activate investor remedies while the business still has customers.


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Source: https://venturecapitaltracker.com/glossary/affirmative-covenants