Covenants

A covenant is a promise or agreement entered into by a borrowing party that is financial or non-financial in nature, such as the borrower should abide by the state laws or tax laws or should use the fund only for the intended purpose, etc. For example, a covenant is when the borrowing company agrees to maintain an agreed financial ratio, such as the interest coverage ratio, total assets to debt ratio, or debt to equity ratio. This covenant is simply a clause in the loan agreement requiring the borrower to refrain from doing certain things.

Q2 Origination allows financial institutions to generate and track covenants and loan agreements during the loan origination life cycle.

Once you have created an application, you can select a covenant from the list of configured covenants to associate with the application. To know how to configure covenants, see Q2 Origination Administration Guide > Covenant Setup. The covenants may be related to financial, credit, document, affirmative, negative, or any other custom definition. Once a covenant is applied to a loan opportunity, Q2 Origination provides you with an enhanced covenant evaluation system that helps you in receiving timely notifications for the upcoming covenant evaluation as per the covenant frequency defined. The Next Evaluation Date gets calculated by adding the values of the Number of Days Till Overdue and Covenant Compliance Start Date. Q2 Origination also tracks covenant evaluation history to provide improved covenant reporting. Lenders can also implement covenant and loan agreement integration with third-party solutions that provide closing document preparation services.

Prerequisites

Before you proceed to associate a covenant with an application, ensure that the following prerequisites are met: 

• At least one covenant is defined.

• An application is created.

The new covenants and covenant definitions can be added in the following ways:

• Using an existing covenant: Use this to add a new covenant from an existing covenant that is associated with the selected party.

• Using a custom covenant: Use this to add an existing custom covenant to the selected party.

• Using a preconfigured custom covenant definition: Use this to add a new covenant using preconfigured custom covenant definition.

• Using a custom covenant definition: Use this to add custom covenant using custom definition to the selected party.

Steps to add new covenant using an existing covenant (tagged to a party)

To associate a covenant with an application:

1. Log in to your Salesforce account.

2. Go to  (App Launcher) > Applications.
   

3. From the list of applications, select the required application.

4. On the application details page, go to More > Covenants.
   

5. To associate a covenant with the selected application, on the Covenants page, select Add New Covenant.
   

   The Add Covenants window is displayed.

   

   Note:

   • If you want to change the selected party, select the search icon in the Select Party field and select the party name as required.

   • You can also associate the existing/new covenants to the following parties on another application:

     • Business Entity

     • Individual Entity

   • You can also filter the covenant definition as per following:

     • No Filters

     • By Relationship Type

     • By Legal Entity Type

     • By Product

6. You can filter the covenant definitions based on the following filters:

7. Select Next.

   Selecting Next navigates to the Select Existing Covenants step.

   The list of covenants are displayed as per the selected filter criteria.

   Note:

   • If the selected party has any existing covenant, the Select Existing Covenants step gets added to the flow.

   • If you do not want to select any existing covenants, select Skip.

   • You can add multiple covenants to a party.

   • You can add duplicate covenants to a party in the same application, if required. If you are adding a duplicate covenant, a warning message gets displayed to inform the addition of the duplicate covenant.

8. To select an existing covenant, select the required covenant from the CONFIGURED COVENANT(S) table, and select + Add Covenant.

   

   Selecting + Add Covenant displays the following window:

   

9. Verify the details, and select Finish.

   Selecting Finish attaches the covenant definition with the application.

   Note:

   • All the covenants that are added to an application would also be linked to the relevant Account/Party.

   • Existing covenants could be custom covenants too.

Steps to add existing custom covenant to a party

1. Follow the steps 1-9 described above and then navigate to the CUSTOM COVENANT(S) table, select the existing custom covenant, and select + Add Covenant.

   

2. Verify the details, and select Finish.

   Selecting Finish attaches the selected covenant with the selected party..

   Note:

   • You can change the Covenant Compliance Start Date as required.

   • The Expiry Date field is noneditable, and it gets updated automatically as per the selected Frequency and Covenant Compliance Start Date.

   • The covenants that are added here gets associated with the application would also be linked to the relevant Account and Party.

   • The Number of Days Till Overdue field is now displayed as Notification Days. This field stores the number of days before the actual evaluation day to create a covenant evaluation record, which serves as a notification in the system that a covenant is due for evaluation by a certain date.

Steps to add new covenant using preconfigured covenant definitions

1. Follow the steps 1-8 described above and select Skip on the Select Existing Covenants step.

   The list of covenant definitions is displayed as per the selected filter criteria, as described in the Note.

2. To select a covenant definition, select the required covenant from the COVENANT DEFINITION(S) table, and select + Create Covenant(s).

   

   Selecting + Create Covenant(s) displays the following window:

   

3. Specify the values as required, and select Finish.

   Selecting Finish attaches the covenant definition to a party.

Steps to add custom covenant using custom definition to a party

1. Follow the steps 1-3 described above and then navigate to CUSTOM COVENANT DEFINITION table, select the Custom Covenant, and select + Create Covenant.

   

   Note:

   The Custom Covenant row is displayed only if it is defined in the configuration. To know more about this, navigate to Q2 Origination Administration Guide > Covenant Setup.

2. Specify the values as required, and select Finish.

   Selecting Finish attaches the selected covenant with the selected party.

Steps to delete covenant from an application

1. Log in to your Salesforce account.

2. Go to  (App Launcher) > Applications.
   

3. From the list of applications, select the required application.

4. On the application details page, go to MORE > COVENANTS.

5. Expand the drop-down menu in the Actions columns for the covenant which you want to delete.

   

6. Select Delete Covenant.

7. In the Deletion Confirmation pop-up, select Delete to delete the covenant and Cancel to cancel the deletion.

   Selecting delete, deletes the covenant from the application.