The loan agreement is a legal contract which details the terms of the loan, the interest rate, its repayment schedule, assets pledged as security to back the loan, and any other terms the borrower and lender may have agreed to as a condition of issuing the loan.
Loans to businesses often include covenants which require the borrower to maintain specified asset ratios on its balance sheet. If the financial condition of the business deteriorates such that the covenants are violated, the lender can call the loan or can force the borrower into bankrutcy court. Some covenants also address issues such as changes in ownership or control of the board of directors, etc.
Related Fool Articles
Recent Mentions on Fool.com
- Borrowers, Rejoice: Simpler Mortgage Disclosure Forms Are Finally Here
- These Biotech Stocks Could Face a Cash Crunch in 2016
- 15 Mortgage Questions and Answers for First-Time Homebuyers
- Why SunEdison, Avon Products, and TrueCar Jumped Today
- 3 Value Stocks Near 52-Week Lows Worth Buying
- SINA Corporation Rides Weibo, Mobile Strength to a Solid Quarter