Loan covenants are an essential part of commercial lending. They provide a framework of understanding for the borrower to meet the requirements of the lender. The covenants can include financial reporting requirements, performance-based covenants and operating covenants. The first two are considered affirmative covenants while the last is generally considered a negative covenant. The loan covenants are included within the loan agreement as a part of the overall loan documentation. The specific requirements for the delivery of financial reporting or the testing of loan covenants should be explicitly included in the loan agreement and consistent with the approval of the credit facility.
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