Construction Estimator Certified (CEC) Practice Exam

A primary objective of a negative covenant in a loan agreement is indeed to preserve cash flows for debt repayment. Negative covenants are restrictions placed on the borrower that prevent certain actions that could jeopardize their ability to repay the loan. By limiting expenditures, asset sales, or additional borrowing, these covenants ensure that the borrower maintains a healthy cash flow. This helps the lender feel confident that funds will remain available to meet the debt obligations.

In contrast, the other choices don't encapsulate the essence of what a negative covenant aims to achieve. While early detection of financial issues, communication with borrowers, and assurance of repayment are important aspects of loan management, they do not specifically relate to the function of negative covenants. The focus of a negative covenant is more on maintaining financial stability and safeguarding the lender's investment by ensuring the borrower does not engage in behavior that could diminish their capability to service the debt.