3. Loan covenants Aa Aa When lenders give loans to borrowers, they use security provisions and covenants that protect them from the risks involved in the loan agreement. Covenants impose limitations and restrictions on the borrower to mitigate the lender's risk. The weaker the credit standing of the borrower, the more restrictive the loan covenants become Which types of loans tend to have more security requirements? O Term loans to large companies Term loans to small companies Consider the following case Kathy took a loan from the bank for her company. The loan agreement requires Kathy's company to maintain a minimum amount of net working capital. This case illustrates an example of a negative covenant Which of the following covenants in Kathy's loan represents a negative covenant? The borrower is required to pay the entire loan amount if they fail to make payments towards the loan. O The borrower cannot merge or consolidate their business without the lender's approval. O Limitations are placed on the level of salaries, bonuses, and advances the borrowing company may give to employees Limitations are placed on the amount of dividends the borrowing company may pay