[patio11]

It’s a loan covenant. They’re very common in a variety of commercial transactions; that particular requirement (you must maintain a minimum level of cash on hand) is relatively common.

It’s really $X million, not $X minus 3 million, because you should have $3 million from any source other than them (e.g. revenue) and failure to have it represents mismanagement.

This particular covenant does not provide material downside protection to the lender; it’s more designed to prevent an aggressive company from riding things too close to the knife’s edge. There would often exist parallel covenants about borrowing money, assigning assets, increasing management salaries, paying dividends, etc.

(Father worked in commercial real estate; lenders have to get increasingly creative when a borrower’s situation is closer to the brink, which is where I learned about these.)