Traditional bank loans incorporate financial (maintenance) covenants, which are designed to give the lender warning signs of a borrower’s negative financial changes when they are breached and allow lenders to either amend the covenant for a period of time or restructure the deal to allow the borrower additional time to strengthen their finances. Cov-lite loans eliminate or reduce maintenance covenants that can result in the lender having little recourse in the event the borrower gets into financial trouble.
