A clause in a loan contract disallowing the borrower from acquiring other companies during the term of the loan is an example of a
A) guarantee.
B) collateral agreement.
C) restrictive covenant.
D) moral hazard.

Question

Quizplus · Accepted Answer

A restrictive covenant is a contractual agreement that restricts one party's behavior in some way. In this case, the covenant disallows the borrower from acquiring other companies during the term of the loan. This is a common type of covenant in loan contracts and is designed to protect the lender's interests by ensuring that the borrower does not take on additional debt or divert resources from paying back the loan. The other options (guarantee, collateral agreement, moral hazard) do not accurately describe this type of clause in a loan contract.

A Clause in a Loan Contract Disallowing the Borrower from Acquiring