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)covenants
C)corporate bonds
D)retained earnings

Question

Quizplus · Accepted Answer

Covenants are clauses in loan agreements that outline specific actions or restrictions that the borrower must adhere to in order to protect the lender's investments. These can include limitations on additional borrowing, minimum cash holdings, or restrictions on asset sales. By agreeing to these covenants, the borrower is effectively agreeing to maintain a certain level of financial stability, which in turn protects the lender's investment. Factors (A) are companies that purchase accounts receivables at a discount, corporate bonds (C) are debt securities issued by corporations to raise capital, and retained earnings (D) are profits that a company chooses to keep rather than pay out as dividends.

The Purpose of _____ Is to Protect Creditors by Preventing