I need a car to be able to get the kids to school and get a new job. I've just divorced my husband, and while I get some money each week, it's hard to save enough for a car out of that. I need to get a used car and a car loan to get us on our feet and start our new life. I don't really mind what a car looks like as long as it runs well. This blog is about getting loans for getting on with the rest of your life after a divorce and has tips for newly single mums.
It is inevitable to live without debt. Huge capital investments like buying a car or new machine for your business requires tonnes of money that you may not readily have. Thankfully, financial institutions like banks offer credit services where you can borrow a large sum of money and repay it in manageable bits over a certain period. Notably, banks must protect themselves by ensuring that the money they lend out is paid back agreed. One way of doing this involves loan covenants, which is a more comprehensive term for a "promise" to pay back the debt. If you are an entrepreneur looking to ask for a bank loan, here are some of the loan covenants that may bind you legally:
Negative Loan Covenants
If a bank lends you money, the management can use negative loan covenants to keep your financial activities in check. The objective is to ensure that your business maintains a certain level of liquidity where you can always meet your debt obligation. In a negative loan covenant, the bank can impose some restrictions on your spending and investments such as paying out dividends, buying assets beyond a certain amount and merging or acquiring other business. In this way, your assets maintain a certain targeted coverage ratio for the debt, keeping the bank from significant losses.
Affirmative Loan Covenants
Affirmative loan covenants are used as a reminder that your actions should guarantee the well-being of your business firm. The well-being of your business is an assurance that your lender won't incur losses because of your inability to pay. An affirmative loan covenant may include responsibilities such as paying all your business bills and taxes punctually, maintaining accurate cost, financial and management accounting records and having a reasonable insurance policy for your business assets.
Financial Loan Covenants
One of the important aspects of your business is forecasting. Using accounting techniques, you can determine what to expect in the near future in terms of sales market share and asset growth among others. Some banks may require you to present these projections before they grant you a loan. Thereafter, they use financial loan covenants to compare how well your business performs compared to the projections that made your finance officers. The lender can then decide your credit worthiness depending your projected ability to repay the loan. Do not manipulate your projected incomes in the future just to qualify for a large sum. It will adversely affect your liquidity.
Credit departments in the bank or debt collection agencies acting on their behalf have the duty to ensure that you are towing the line regarding your loan covenant. Violating these covenants can lead to fines and legal suits.
Share18 August 2016
