A covenant is a promise baked into a loan agreement that lets the lender intervene *before* the borrower actually runs out of cash. There are two species. A maintenance covenant is tested every quarter no matter what the borrower does: if a 4.5x net-leverage limit is in place and net debt / EBITDA drifts from 4.0x to 4.6x, the borrower is in breach even though it paid every penny of interest. An incurrence covenant, by contrast, is only tested when the borrower *takes an action* — raising new debt, paying a dividend, buying a company. Maintenance is a trip wire; incurrence is a gate. The shift to covenant-lite (incurrence-only) loans is dramatic: cov-lite grew from ~10% of the US leveraged-loan market in 2007 to over 80% by 2020, which removes the lender's early-warning system.