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ACC 557 Week 6 DQ2
“Debt Covenants” Please respond to the following:
Based on your research conducted in the e-Activity, assess the key components of the loan covenant typically used in business loans. Indicate the necessity of each covenant and the likelihood that default will be prevented. Suggest whether or not you agree or disagree with lenders using the covenant approach for protection. Provide a rationale for your position.
Create an alternative strategy for lenders to use to protect themselves for loan default. Indicate how this approach would be more desirable than debt covenants. Provide support for your strategy.
Debt covenants usually consist of the following requirements: Maintenance of minimum working capital and debt service coverage ratios; maintenance of minimum net worth; restrictions on other borrowings, shareholder salaries, distribut