Equity cure
What is an equity cure, and how many times can a borrower use one?
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BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED
// THE SHORT ANSWER
An equity cure lets the owners fix a breached financial covenant by putting in new equity, which is then counted as if it were extra EBITDA, or used to reduce debt, when the covenant is recalculated. Lenders limit how often it can be used, typically a set number of times over the life of the loan and not in consecutive quarters, and they may require the money to repay debt. A cure keeps a sound business out of default over one bad quarter; used repeatedly, it hides a business that no longer earns its debt.
BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.
// WORKED IN
// NEXT TO IT
- Covenant headroom
- Negative pledge
- Condition precedent (CP)
- Event of default
- Covenant waiver
- Reservation of rights
- Term sheet
- Condition subsequent
- Review event
- Repayable on demand
- Material adverse change (MAC) clause
- Cross-default
- Change of control clause
- Cure period
- Compliance certificate
- Information undertakings
- Liquidity covenant
- Springing covenant
- Covenant reset
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