A loan covenant is a condition in a commercial loan or bond issue that requires the borrower to fulfill certain conditions or which forbids the borrower from undertaking certain actions, or which possibly restricts certain activities to circumstances when other conditions are met.
Typically, violation of a covenant may result in a default on the loan being declared, penalties being applied, or the loan being called.
Covenants may also be waived, either temporarily or permanently, usually at the sole discretion of the lender.
A good example for understanding Loan Covenants would be syndicate loans, where several banks act as party to loans and borrower may be one or several.
Read more about Loan Covenant: The Function of Loan Covenants
Other articles related to "loan covenant, covenants, loan":
... Covenants are undertakings given by a borrower as part of a term loan agreement ... lender ensure that the risk attached to the loan does not unexpectedly deteriorate prior to maturity ... From the borrower's point of view covenants often appear to be an obstacle at the time of negotiating a loan and burdensome restriction during its term ...
Famous quotes containing the words covenant and/or loan:
“Happy is the house that shelters a friend! It might well be built, like a festal bower or arch, to entertain him a single day. Happier, if he know the solemnity of that relation, and honor its law! He offers himself a candidate for that covenant comes up, like an Olympian, to the great games, where the first- born of the world are the competitors.”
—Ralph Waldo Emerson (1803–1882)
“Slight was the thing I bought,
Small was the debt I thought,
Poor was the loan at best—
God! but the interest!”
—Paul Laurence Dunbar (1872–1906)