Covenants are undertakings given by a borrower as part of a term loan agreement.
Their purpose is to help the lender ensure that the risk attached to the loan does not unexpectedly deteriorate prior to maturity.
From the borrower's point of view covenants often appear to be an obstacle at the time of negotiating a loan and burdensome restriction during its term.
When a covenant is broken and additional equity should be contributed, the debtor might not be able to provide it or at least not adequately.
Often, the breach of any covenant gives the lender the right to call the loan or collect interest at a higher rate.