Debt covenants are agreements or conditions imposed by lenders as part of a business loan contract. These covenants are designed to ensure that the borrower maintains certain financial health and operational standards to minimize the risk to the lender. Debt covenants set limits on the borrower's activities or financial performance and are meant to safeguard the lender’s interests by reducing the risk of default.

Debt covenants are typically classified into two categories:

1. Positive (affirmative) covenants require the borrower to meet specific obligations or actions.

2. Negative covenants restrict the borrower from taking certain actions that could increase the risk to the lender.

Though debt covenants largely benefit the lender by reducing risk and providing early warning signs a borrower is facing financial difficulties, they can help borrowers secure lower interest rates on loans. 

If a borrower fails to comply with the covenants (also known as breaching or defaulting on the covenants), the lender may take action to protect its investment. 

Consequences of breaching covenants include:

• Higher interest rates: The lender may increase the loan’s interest rate to compensate for the increased risk.

• Demanding immediate repayment: In extreme cases, the lender may demand the borrower to immediately repay the loan in full.

• Renegotiation of terms: The borrower and lender may negotiate new loan terms, which could include more restrictive covenants or penalties.

• Loss of access to further credit: The borrower may lose access to additional borrowing under the same facility or future credit from the lender.

• Legal actions or foreclosure: If the loan is secured by assets, the lender may begin foreclosure proceedings on the collateralized assets to recover its funds.