Asked by Johnny Reyes on Jun 13, 2024
Verified
To lessen the risks involved in term loans,a bank will require some restrictive covenants in loan agreements.
Restrictive Covenants
Clauses in contracts that restrict or limit actions of the parties involved, often used in real estate and employment agreements.
- Recognize the stipulations and outcomes linked to term loans, encompassing limiting agreements.
Verified Answer
SP
Sarita PersaudJun 16, 2024
Final Answer :
True
Explanation :
Restrictive covenants are conditions and restrictions in loan agreements that aim to reduce the bank's risk by providing assurance that the borrower will maintain certain financial ratios, adhere to spending limits, and take other specific actions. This helps ensure that the borrower can repay the loan as agreed and reduces the likelihood of default, which is beneficial to the bank.
Learning Objectives
- Recognize the stipulations and outcomes linked to term loans, encompassing limiting agreements.
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