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What are loan covenants? How do these compare to guarantees, pledges and warrants?

What are loan covenants? How do these compare to guarantees, pledges and warrants?

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A loan covenant is a condition that is imposed on a bond issue, that prohibits the borrower from undertaking certain actions. Violation of any covenant can lead to the default of a loan. Examples of covenants are interest service coverage ratio, debt to service coverage ratio, loan to value ratio. The debtors economic freedom is restricted in the case of covenants.

A warranty is a promise or guarantee that the existing and future facts are true or will be true, these are factual promises that can be enforced. Warranty is a condition , whereas covenant is a action or inaction. All these terms covenants, pledges, guarantees and warrants are synonymous to promise.

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