The purpose of _____ is to protect creditors by preventing the borrower from pursuing policies that might undermine its ability to repay the loan.
A) factors
B) corporate bonds
C) commercial paper
D) covenants

Question

Quizplus · Accepted Answer

Covenants are contractual provisions that limit the actions of the borrower and ensure that the borrower does not take on too much debt or engage in activities that could negatively impact its ability to repay the loan. These restrictions are put in place to protect the creditors' interests and ensure that the borrower remains financially stable. Factors are companies that purchase accounts receivable from other companies, corporate bonds are debt securities issued by corporations to raise capital, and commercial paper is a short-term debt instrument issued by companies. None of these options relate directly to the purpose of protecting creditors through loan covenants.

The Purpose of _____ Is to Protect Creditors by Preventing