Which of the following would be considered a "positive" loan covenant?
A) Days receivables outstanding cannot exceed 30 days
B) No change in senior management
C) Capital outlays cannot exceed $1,000,000 per year
D) No additional liens may be placed on the collateral
E) The bank must approve any firm mergers or acquisitions

Question

Quizplus · Accepted Answer

A "positive" loan covenant is one that requires the borrower to take certain affirmative actions or meet certain financial targets. Option A requires the borrower to keep its days receivables outstanding below 30 days, which is a financial target that would be seen as positive by a lender. Options B, C, D, and E are all examples of negative covenants that restrict the actions a borrower can take, rather than encouraging positive actions.

Which of the Following Would Be Considered a "Positive" Loan