✨ Quora answers ✨
In its broadest sense, a covenant is a promise, agreement, or contract between two parties. As part of the covenant, the two parties agree that certain activities will or will not be carried out.
Covenants in finance most often relate to terms in a financial contract, such as a loan document or bond issue stating the limits at which the borrower can further lend. Covenants in religion often convey the binding relationship between a deity and humanity.
➡️Covenants are agreements between multiple parties that create a legally binding agreement on how each party is to perform.
➡️Covenants can either promote activity to occur (positive covenant) or disallow an event or condition (negative covenant).
➡️Debt covenants are most common, as they place financial covenants on the borrower and lender as part of the loan agreement.
➡️Covenants are legally binding clauses, and if breached will trigger compensatory or other legal action.
➡️Many sectors like finance, real estate, law, and religion have covenants, though it is used in many different contexts across each group.
Regarding business, covenants are most often represented in terms of financial ratios that must be maintained, such as a maximum debt-to-asset ratio or other such ratios. They cover various aspects, from minimum dividend payments to working capital levels. If a covenant is broken, the lender can call back the obligation or reduce risk. There are two primary types: affirmative and negative covenants, and a third type, financial covenants, sometimes separated into its own category.
Types of Covenants
Different industries and sectors have different types of covenants. In general, it’s pretty common to see both positive and negative covenants across different industries.
➡️Debt Covenants
➡️Property Covenants
➡️Law Covenants
➡️Religious Covenants
Check out our video: https://www.youtube.com/watch?v=zPV_97cGVNs&t=9s
Read more about Implied Terms In A Contract: https://blog.seocopywriting.ro/2024/11/08/what-are-implied-terms-of-the-contract-and-its-examples/
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