For example, instead of borrowing funds from a bank, a company might borrow funds from the general public in the form of a bond. When a bank lends money to a company, it may often inspect the company's financial statements to ensure that the company follows the rules (known as covenants) of the loan agreement, and may also attempt to negotiate a settlement if the company has problems and stops repaying its loan.
For instance, rather than borrowing money from a bank, a company might obtain funds from the public by issuing bonds. When a bank lends money to a firm, it frequently examines the company's financial records to ensure that the company adheres to the loan agreement (known as covenants), and may also attempt to negotiate terms if the company encounters difficulties and stops repaying its loan.