A loan covenant is a set of conditions or restrictions that a borrower must agree to in order to obtain a loan from a lender. These covenants are designed to protect the interests of the lender and ensure that the borrower meets certain financial and operational requirements.

Loan covenants typically include financial covenants, which require the borrower to maintain certain financial ratios, such as debt-to-equity ratio, or to meet specific financial targets, such as revenue or profit margins. Operational covenants may also be included, which require the borrower to maintain certain levels of inventory or limit capital expenditures.