What is defined as a condition included in a loan agreement that outlines requirements for the borrower?

Study for the nCino Business Value Exam. Explore flashcards and multiple choice questions, complete with hints and explanations. Prepare for success!

The term that is defined as a condition included in a loan agreement outlining requirements for the borrower is "Covenant." In the context of loan agreements, covenants serve as promises or obligations that the borrower must adhere to throughout the term of the loan. These could include financial ratios that the borrower must maintain, such as debt-to-equity ratios or restrictions on additional borrowing. By including covenants, lenders can manage risk and ensure that the borrower remains financially stable, thus protecting the lender's investment.

Covenants can be categorized into affirmative covenants, which require the borrower to take certain actions, and negative covenants, which restrict the borrower from taking specific actions that could jeopardize their ability to repay the loan. This mechanism helps maintain a transparent relationship between the borrower and the lender, as the borrower must regularly demonstrate compliance with these requirements.

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