In one sentence
The ongoing confirmation that a borrower is meeting the loan's promises, tested periodically from the borrower's financial reporting.
The longer version
Loan agreements carry covenants: minimum DSCR, reporting deadlines, restrictions on transfers and additional debt. Compliance is tested each period, usually from statements the borrower must deliver on schedule.
Testing only works if the reporting arrives and the file is current. Covenant tracking is a steady servicing cadence, and a common examination focus.
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