Covenant
Content
Definition
Covenant in finance terms is an agreement or promise to do or not to do something, often included in lending agreements specifying conditions the borrower must adhere to.
Usage and Context
Covenants are found in loans and bond agreements. They set rules borrowers must follow. This could be about financial numbers or business actions.
Frequently asked questions
- What does covenant mean in finance? In finance, a covenant is a rule or promise in a loan or bond deal. The borrower agrees to meet certain conditions.
- What is an example of a financial covenant in a loan agreement? An example is a debt-to-income ratio covenant. It requires the borrower to keep their debt lower than a set percentage of their income.
- What is the deed of covenant contract? A deed of covenant is a formal agreement. It involves promises to pay money regularly, often seen in leasing or renting situations.
Benefits
Covenants protect lenders by ensuring borrowers stick to certain behaviors. They help manage risk and keep the loan on track.
Conclusion
Covenants are key promises in finance. They make sure borrowers follow certain rules. This helps keep the lending agreement safe and fair.
