Five tips to avoid stalemates when negotiating financial covenants

In today's competitive lending market, as well as competing on price, lenders must show flexibility when negotiating financial covenants.

There is a natural tension between what borrowers and lenders both want. Borrowers want flexible and loose financial covenants while lenders aim for restrictive and watertight terms. The outcome is that negotiations often end in a stalemate.

Successfully negotiating financial covenants often requires some thinking "outside the box" to find a solution that meets the interests of both lender and borrower.

In the financial covenant provisions, a borrower covenants with the lender to maintain a certain ratio between obligations under the loan and key figures derived from financial data such as the borrower's balance sheet.