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 example, rather than borrowing from a bank, a firm might obtain funds by issuing bonds. When a lender provides money to an organization, they often inspect the company's financial records to ensure adherence to the loan agreement (known as covenants) and may attempt to negotiate terms if the company encounters problems and stops repaying its loan.