Loan covenants are used for which of the following reasons?
A)To protect the lender from the borrower substantially weakening the borrower's financial position.
B)To protect the borrower from the lender calling the loan early.
C)To protect the auditors from false information by the borrower.
D)To protect shareholders from management taking on too much debt.

Question

Quizplus · Accepted Answer

Loan covenants are put in place to protect the lender from the borrower doing anything that may jeopardize their ability to repay the loan, such as taking on excessive amounts of additional debt or selling off significant assets. This helps to mitigate the lender's risk and ensures they have a better chance of getting their money back.

Loan Covenants Are Used for Which of the Following Reasons