Question

Covenants represent: Select one: A. Promises the company makes to the creditor B. The maximum that a creditor will allow a customer to owe at any point in time C. The property that a company pledges to guarantee repayment D. Terms and conditions set forth in a lending agreement to reduce the probability of nonpayment

Answer 1

Terms and conditions set forth in a lending agreement to reduce the probability of nonpayment (D)

Step-by-step explanation:

when loans are given and taken, both parties sign an agreement known as loan covenants. Loan Covenants are agreements stipulating the terms and conditions of loan policies between a borrower and a lender. The agreement gives lenders leeway in providing loans while still protecting their lending position. Similarly, due to the transparency of the regulations, borrowers get clear expectations of the lenders. This is in a bid to reduce the probability of nonpayment, while at the same time stating expectations of the borrower. There are two main types of loan covenants, and these are Affirmative loan covenants and Negative loan covenants.