Depending on the type and amount of your business loan, lenders will often require that you comply with certain terms as a condition of receiving the loan.
Typical Term Loan requirements
These terms include the following covenants:
- Submit annual financial statements to the Lender within 90 days of the business fiscal year end
- Provide the Lender with monthly reports
- Ensure the original amount of money loaned to the business owner is not withdrawn during the period that the lender has provided money to the business
Defaulting on Loan Covenants
In the same way that if you miss mortgage payments on your home, the bank can foreclose it and then put it up for sale; this can also happen to your business if you default on the Loan Covenants.
When you default on your business loans, the Lender can seize your business and sell it. This is called being in “Receivership”.