Debt Covenant Resolution during COVID-19

This paper explores the change in the relationships between small and private business borrowers and their lenders during the 2020 COVID pandemic. Nationwide government mandated closures changed consumer patterns as well as the cash flow to small and private businesses. Limited cash flows threatened the access to credit for these businesses and the expected outcome of the resulting covenant violations was catastrophic. After surveying nine high ranking credit officers from lenders of various sizes and geographic locations, it was clear that lenders maintained these small and private businesses’ lines of credit through accommodations, mainly payment deferral programs and waived covenants. Results indicated lenders used various thresholds for offering accommodations and associated costs. However, every lender, independent of their size, asset class, and geographical characteristics, was willing to work with their small and private business borrowers to help them survive the challenges of the pandemic.