The state of today's economy has caused many financial institutions to significantly tighten lending policies. For many industries this situation has caused folks to go into "panic mode" in order to continue to do business while having access to less operating capital. Although many financial institutions remain interested (for the moment) to loan money to the alarm and security industry, there are a number of us playing this game who may not fully comprehend the consequences associated with life in the finance fast lane.

While some of the rules have changed, there are several which have not changed at all. Those of you who have played the game for a long time are well aware of "material adverse change clauses" in the covenants on your loan documents. Unfortunately, a lot of people playing today are not aware of some of the new and creative things certain lenders have incorporated into the covenants so as to cover their butt's in a shaky economy.

Ever since the dawn of lending, financial institutions have found it necessary to provide themselves with certain protections on business loans regardless of the credit worthiness of their clients. No matter your particular FICO score, material adverse change clauses have become considerably more intense and strict recently. Back in the 1970s and '80s for example, a material adverse change clause previously would state that if your company revenue decreases by a certain percentage in a given amount of time, the bank would give you from 30 to 60 days to rectify the situation. If you didn't rectify the situation, they would have the right to call your note "right then." If you couldn't pay them back, of course, they could and would foreclose on your company.

Today, money lending institutions are under a great amount of pressure to hedge their bet's and have broadened the scope of these protections by intentionally making many of them considerably less specific.

Some examples of the new generation of adverse change clauses can include changes to your company's management team, changes in your operating costs, changes to percentage of net attrition, higher leverage (earnings to debt ratios), and any number of financial changes they deem as a threat (or potential threat) to their ability to remain gainful.

A negative change to a company's debt to EBITDA (earnings before interest tax depreciation and amortization) has already caused a number of lenders to foreclose on some business loans. Another clause threshold commonly found in loan covenants is if the company debt goes beyond the threshold of 10 times the RMR.