What on Earth is a Negative Pledge? 🤔
Imagine if loans could talk, they’d be like that overly protective friend who says, “Hey, no making new friends until you get rid of me!” A negative pledge is essentially a promise a borrower makes. It’s like saying, “I swear ‘upon my honor, no other secured loans shall enter my life without equal rights to you.”
Sounds like an oath from a medieval knight, right?
But in accounting terms, a negative pledge prevents any new king— err, I mean, loan—from taking priority over an existing one. Curtain down, peasants. 💂♂️
The Royal Decree (Definition)
Negative Pledge: A covenant in a loan agreement in which a borrower promises that no secured borrowings will be made during the life of the loan or will ensure that the loan is secured equally and rateably with any new borrowings as specifically defined.
Meet the Main Character: Borrower Bob 😎
Let’s take a voyage with Borrower Bob. He has taken a loan from King Bank and signed a promise, known as the
