Loan Covenants 101 — Meeting Your Bank’s Requirements

Getting a loan is only the beginning—keeping it requires meeting covenants. Banks attach financial ratios and reporting conditions to ensure ongoing creditworthiness. Breaching them can trigger penalties or early repayment. Mackisen CPA Auditors Montreal monitors, reports, and certifies compliance with all loan covenants, protecting your reputation and financing stability.

Legal and Regulatory Framework
Bank Act (Canada) Section 462: Allows lenders to impose financial maintenance conditions.
Income Tax Act (Canada) Section 230(1): Requires verifiable records supporting loan compliance.
CPA Canada Handbook Section 1500: Defines ratio and debt reporting standards.
Taxation Act (Quebec) Section 34: Ensures consistency between tax filings and financial reports.
Financial Administration Act (Quebec): Requires transparency for all corporate financing activities.

Key Court Decisions
Royal Bank v. Canada (2019): Confirmed banks may recall loans if financial covenants are breached.
Beaudoin v. The Queen (2020): Linked CRA audit reviews to bank ratios.
Simard Beaudry Construction v. Canada (2019): Accepted CPA-audited ratios as credible.
Lincora Group v. Quebec (2019): Penalized misreported financial obligations.
Tremblay Holdings v. The Queen (2021): Reinforced the need for consistent loan reporting.

Why Banks and CRA Monitor Covenants
Banks compare ratios and statements to filed taxes to confirm accuracy. Inconsistency suggests risk or mismanagement. Mackisen CPA Auditors Montreal ensures alignment through continuous CPA review.

Mackisen Strategy
Covenant Mapping — Identify and document each loan requirement.
Ratio Monitoring — Track debt-service, interest coverage, and liquidity ratios monthly.
Reporting Automation — Generate bank compliance reports with CPA verification.
Variance Correction — Address issues before breach occurs.
CPA Communication — Liaise with banks to confirm compliance status.

Powering Client Needs and Financial Discipline
A Montreal manufacturer avoided loan recall after Mackisen recalculated its ratios and provided CPA-certified reports. A Quebec exporter renegotiated better terms by maintaining perfect covenant compliance. An Ontario technology firm used Mackisen’s monitoring system to stay audit-ready.
How Mackisen Clients Benefit

• Continuous loan compliance tracking

• CPA-verified bank reports

• Improved credit ratings and trust

• Early warning for financial breaches

Common Questions
What are loan covenants? Financial conditions attached to credit agreements.
What happens if I breach one? Banks can recall or penalize the loan.
Do banks check CRA records? Yes, to validate financial accuracy.
Can Mackisen handle reporting? Yes, we monitor and submit CPA-approved reports.
Will compliance improve rates? Yes—trust lowers risk premiums.

Why Mackisen
Mackisen CPA Auditors Montreal ensures your business meets every loan condition without stress. We monitor, report, and communicate with banks so you can focus on growth.