Eitan Eldar explains that the goal in these covenants is to maintain a healthy financial behavior, as reflected in the financial reports. The interest of the borrower is to fulfill the covenants, because his success depends on the loan given to him. Failure to fulfill conditions leads to a threat to the business.

For instance, the lender can demand immediate repayment of debt or payment by guarantors. In some cases, says Eitan Eldar, the lender party and the borrower sign a new deal with other conditions that are considered inferior to the borrower. When a company does not fulfill the covenants set, the behaviour of the banks and the public is affected, especially the company’s shares.

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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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