Asked by Sienna Capellas on Jul 07, 2024
Verified
Why do loan agreements often contain covenants tied to accounting numbers? Are there any disadvantages to this common practice?
Loan Agreements
Contracts between a borrower and a lender outlining the terms of a loan.
Covenants
Agreements or clauses within a financial contract that obligate the borrower to meet specified conditions or restrict certain actions to protect the lender's interests.
Accounting Numbers
Financial figures derived from accounting practices that represent a company's financial performance and position.
- Comprehend the role and potential drawbacks of accounting covenants in loan agreements.
Verified Answer
Learning Objectives
- Comprehend the role and potential drawbacks of accounting covenants in loan agreements.
Related questions
An Increase in Which One of the Following Is Most ...
Which of the Following Is the Best Definition of Covenants ...
A Lender Is Protected Against Anticipated Credit Risks by the ...
In Industries That Are Subject to Unwanted Attention from Politicians,managers ...
A Requirement to Maintain a Certain Level of Fixed Charge ...