The Grass is Greener Company borrows money from a bank.Part of the loan agreement requires Grass is Greener to maintain stockholders' equity of at least 40% of assets or otherwise to pay a higher interest rate.This requirement is referred to as a:
A)loan covenant.
B)credit rating.
C)bond rating.
D)call feature.

Question

Quizplus · Accepted Answer

Many lending agreements include loan covenants,which require the company to achieve financial targets,such as maintaining specific levels of assets or stockholders' equity.Loan covenants are terms of a loan agreement that if broken,entitle the lender to renegotiate loan terms or force repayment.

The Grass Is Greener Company Borrows Money from a Bank