---
title: "What Is Maintenance Covenant?"
term: "Maintenance Covenant"
description: "A maintenance covenant is a loan requirement that the borrower must keep financial ratios above or below set thresholds throughout the life of the debt, not just at closing."
date: 2026-07-25T00:00:00.000Z
updated: 2026-07-25T00:00:00.000Z
topics: ["venture-capital"]
source: https://venturecapitaltracker.com/glossary/maintenance-covenant
---

# What Is Maintenance Covenant?

> A maintenance covenant is a loan requirement that the borrower must keep financial ratios above or below set thresholds throughout the life of the debt, not just at closing.

**Maintenance covenant** is a financial test in a credit agreement that the borrower must pass continuously—typically each quarter—while the loan is outstanding.

### How it works

Unlike incurrence covenants (which block new actions like taking more debt), maintenance covenants measure whether the company still meets agreed financial health standards. Common tests in venture and growth lending:

- Minimum cash or liquidity balance
- Minimum trailing revenue or ARR
- Maximum net leverage or debt-to-EBITDA
- Minimum interest coverage

Example: a venture debt facility might require at least six months of runway in unrestricted cash at each quarter-end. If Q2 cash drops below that threshold, the company is in technical default even if it never missed an interest payment.

Lenders may grant waivers for one-time misses—often for a fee and tighter future covenants. Repeated breaches can accelerate repayment or block additional draws.

### Why it matters

- **Founders:** Model covenant headroom in your cash forecast before signing. A slow quarter can trigger a covenant breach before you run out of cash entirely.
- **Investors:** Covenant waivers appear in board materials and can precede down rounds. They reveal how much cushion the company has under its debt stack.

### Common mistake

Assuming venture debt is "covenant-light" without reading the schedule. Many facilities start with loose tests that tighten after a year or tie to fundraising milestones.

### Related ideas

See also [venture debt](/glossary/venture-debt), [event of default](/glossary/event-of-default), [incurrence covenant](/glossary/incurrence-covenant), and [maturity wall](/glossary/maturity-wall).

## FAQ

### What is maintenance covenant in simple terms?

It is an ongoing rule in your loan agreement—like minimum cash balance or maximum debt-to-revenue—that you must satisfy every quarter. Miss it and the lender may declare default or demand a waiver fee.

### Why does maintenance covenant matter?

For founders, covenants turn a flexible growth loan into a monthly compliance exercise. For investors, covenant breaches signal liquidity stress before equity rounds and can force dilutive fixes or asset sales.


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Source: https://venturecapitaltracker.com/glossary/maintenance-covenant