The Grass is Greener Company borrows money from a bank.Part of the loan agreement requires Grass is Greener to maintain shareholders' 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 loan covenant, which is a contractual agreement between the borrower and the lender that sets out specific conditions that must be met by the borrower in order to maintain the loan agreement. In this case, the loan covenant requires Grass is Greener to maintain a certain level of shareholders' equity to avoid paying a higher interest rate on the loan.

The Grass Is Greener Company Borrows Money from a Bank