What are the covenants and restrictive agreements that come with the loan?

Covenants and restrictive agreements are terms and conditions attached to a loan that borrowers must follow to keep the loan in good standing. These terms are designed to protect the lender's interests and ensure that the borrower does not take actions that could harm the lender's investment. In India, the covenants and restrictive agreements that come with a loan may vary depending on the type of loan, the lender, and the borrower's creditworthiness.

Some of the common covenants and restrictive agreements that come with a loan in India include:

1. Financial covenants: These covenants require borrowers to maintain a certain level of financial performance, such as a minimum debt service coverage ratio or a maximum debttoequity ratio.

2. Reporting requirements: Borrowers may be required to provide regular financial reports to the lender, including balance sheets, income statements, and cash flow statements.

3. Restrictions on dividends and capital expenditures: Lenders may restrict borrowers from paying dividends or making significant capital expenditures without prior approval.

4. Change of control provisions: These provisions restrict borrowers from selling or transferring ownership without the lender's consent.

5. Collateral requirements: Lenders may require borrowers to provide collateral to secure the loan, such as real estate or other assets.

It is important for borrowers to carefully review the covenants and restrictive agreements that come with a loan and ensure that they can comply with them before accepting the loan. If a borrower fails to meet the covenants or violates the restrictive agreements, it may trigger default and result in significant financial consequences.