Manage covenants and talk to lenders early

Who this is for

Founder led lower-middle market companies with 5 to 50 million in annual revenue that want steady banking relationships.

The quick answer

Track covenants monthly with a simple dashboard and a three quarter look ahead. If headroom is tightening, prepare actions that lift margin, reduce spend, or add equity. Share a short pack with your banker early that includes the thirteen week cash view, backlog, pipeline, and the action plan with dates.

The method in six steps

List your covenants and tests
Coverage ratios, leverage, borrowing base, and reporting deadlines. Write the exact formula for each.
Build the dashboard
Show current value, required value, headroom, and a simple traffic light. Include a three quarter look ahead with base and downside cases.
Tie to your forecast
Connect the dashboard to the thirteen week cash view and to revenue scenarios so movements make sense.
Prepare actions
Price moves, cost reductions, spend pauses, equity injections, or asset sales. Write thresholds that trigger each action.
Communicate early
If headroom tightens, send a short pack. Include the dashboard, the cash view, backlog, pipeline, and the action plan with dates. Invite feedback.
Review monthly
Hold a monthly internal review and a quarterly lender update even when things are calm. Trust grows when surprises are rare.

Example

A firm saw headroom tighten in the forecast due to a slow quarter. They sent an early pack and a plan that included a pricing step and a temporary spend pause. The bank supported the plan and confidence stayed high.

Pitfalls and fixes

Vague covenant math. Write the exact formula.
Waiting until a breach. Share early when trends point to risk.
Action lists with no triggers. Tie actions to thresholds.

Checklist

Covenant list with formulas
Dashboard with headroom and look ahead
Links to cash and revenue scenarios
Pre written action plan
Monthly and quarterly reviews