Debt Covenants

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DEBT COVENANTS
Things that the borrower must do
1. Hazard Insurance
The borrower is involve to keep insurance coverage on the plant / equipment or inventory in crop to safeguard against the catastrophic loss of collateral
2. Key-man feeling insurance
Insures the life of the indispensable owner or manager without whom the company could not continue. The lender usually gets an assignment of the policy.
3. Payment of taxes / fees / licenses
Borrower agrees to keep those expenses up to date as failure to pay would result on the assets of the company being encumbered by a lien from the government, which would take precedence to the one from the bank.
4. pecuniary information on borrower and guarantor
Borrower agrees to submit financial statements for the continuing assessment by the bank. Financial statements are usually submitted yearly, while account receivable commode be required every month.
5. Minimum financial ratios
The borrower is required to maintain a certain level in cay financial ratios such as:
Minimum quick and period ratios (liquidity) 
Minimum Return on Assets and Return on rightfulness (profitability) 
Minimum equity, minimum working capital and maximum debt to value (leverage)
Maximum Working Capital Gap, etc.





Things that the borrower dropnot do
1. No change of heed or jointure without prior approval.
Guarantees the continuing existence of your borrower and lead impede the deterioration of financial condition due to merger with an unknown entity
2. No more loans without prior approval
Assures that the company does not take on excessive debt affecting the quality of the authoritative loan.
3. No dividends/withdrawals or limited dividend withdrawals
In situations where the net worth is being eroded by the extraction of capital in the form of dividends or stockholders withdrawals. The lender tycoon find it necessary to restrict the amount of money that can be taken...If you want to get a full essay, order it on our website: Orderessay



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