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 pay a higher interest rate. This requirement is referred to as a:

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This requirement is a specific provision within the loan agreement, known as a loan covenant. Loan covenants are conditions that a borrower must meet in order to comply with the terms of the loan agreement. In this case, the covenant requires the borrower to maintain a certain level of stockholders' equity or face consequences, such as a higher interest rate.

The Grass Is Greener Company Borrows Money from a Bank