What does it mean to be in violation of the debt covenants?
Debt covenants are rules set be lender that the borrow must follow. For example, let’s say that the borrow is required to maintain total assets of $5 million or greater. If total assets drops below $5 million, the borrow would be violating the debt covenants and they could be required to repay the loan immediately or incur additional fees/penalties.
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What is the difference between a debtor and a creditor?
When a company borrows money, they are considered the debtor, or the borrower. The debtor would borrow money from the creditor, or lender (i.e. a bank). The debtor borrows cash from lender for a set period of time and will likely pay the lender interest.