Which of the following is considered a negative covenant? Group of answer choices A borrower will keep the lender informed of its financial condition. A borrower will maintain insurance policies. A borrower may not incur additional debt beyond a specified amount. A borrower will inform the lender of any material adverse change in its operations or financial condition.

Which of the following is considered a negative covenant?
Group of answer choices
A borrower will keep the lender informed of its financial condition.
A borrower will maintain insurance policies.
A borrower may not incur additional debt beyond a specified amount.
A borrower will inform the lender of any material adverse change in its operations or financial condition.

Answer

• A borrower may not incur additional debt beyond a specified amount.
  Explanation:

• They made to make the borrower refrain from action that could lead to decrease in their credit standing and the ability to repay their loans.
• It is also the financial ratio that a borrower needs to have as of the date of financial statements.
• An example of negative covenant, the borrower may not incur additional debt above the specified.

Reference
Managers and the Legal Environment: Strategies for Business
By Constance E. Bagley page 751