Loan agreements typically contain three types of covenants:
1. Negative loan covenants – Borrower may not . . .
2. Affirmative loan covenants – Borrower promises to . . .
3. Financial loan covenants – Financial metrics tied to a borrower’s revenue, expenses, and debt
Loan agreements usually provide that the occurrence of a breach of a covenant constitutes an event of default, triggering a lender’s right to exercise remedies, increase interest rates, accelerate the due date of payments, and take other actions. Read more…