What Covenants the Bank Requires in a Loan?

When a businessman wants to become the controlling shareholder of a public company to acquire 51 percent control of it, he usually asks for a loan from the bank. Eitan Eldar says that the amount of the loan depends on the equity of the purchaser.

In this situation, the bank would like covenants. These covenants are certain conditions in the loan agreement guaranteeing the loan funds will be returned to the bank at the end of the process. The purpose behind the conditions is to keep the buyer so that he could return the money loaned from the bank.

These are actually financial standards that include some limitations, such as maintaining the the amount of personal capital. Once the purchaser does not meet the conditions, the loan will be immediately due and payable.

Eitan Eldar emphasizes that the bank and the buyer are not related to the company. The entity that has a relationship with the bank is the only buyer. The company can continue its current operations as usual.

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