Many lending agreements require the borrowing company to maintain certain financial standards as demonstrated by its financial statements. This feature is known as:
A) convertible debt.
B) a loan covenant.
C) callable debt.
D) secured debt.

Question

Quizplus · Accepted Answer

The feature described in the question is commonly known as a loan covenant. A loan covenant is a condition or requirement that the borrower must meet to prevent a default on the loan. Maintaining certain financial standards, such as a minimum level of profitability or a maximum ratio of debt to equity, is a common loan covenant that may be included in a lending agreement.

Many Lending Agreements Require the Borrowing Company to Maintain Certain