Ask the Advisor – How important is compliance with debt-related loan covenants?
Abstract: The commercial mortgage arena is far from rosy. Lenders don’t want to expose themselves to the types of losses they sustained when the real estate market crashed. To protect their interests, many lenders are insisting on the inclusion of debt-related loan covenants. Borrowers that violate them risk costly consequences. This article explains the difference between debt service coverage covenants and loan-to-value (LTV) covenants, along with the consequences of noncompliance.