2

Which of the following is NOT a reason why the ownership structure of a company is important for the credit application?

It gives an idea of who the primary decision-makers are and the effectiveness of the decision-making process.

The tangible net worth of the company owners can be evaluated when considering the collateral of the company.

Ownership determines who is liable for the loans taken by the company.

Depending on the ultimate beneficial owners, regulations may prevent us from lending to the company.

6

Which of the following is TRUE regarding management analysis?

Review Later

A risk averse management team is preferred when evaluating the creditworthiness of a company.

Management analysis is critical when dealing with a high-risk borrower.

The reputation of the management team should be evaluated by interviewing employees of the company.

Management analysis is always necessary, even for low-risk borrowers.

3

What does a proper loan structure accomplish for the borrower and the lender?

Review Later

Maximizes available funds; charges the highest interest rate

Satisfies financial needs; optimizes profitability

Solves working capital shortfalls; increases account monitoring efficiency

Minimizes interest fees; speeds up the approval process

6

Which of the following is TRUE regarding management analysis?

Review Later

A risk averse management team is preferred when evaluating the creditworthiness of a company.

Management analysis is always necessary, even for low-risk borrowers.

Management analysis is critical when dealing with a high-risk borrower.

The reputation of the management team should be evaluated by interviewing employees of the company.

9

What is the purpose of loan covenants?

Review Later

To require or restrict the borrower from doing something that could affect their creditworthiness.

To encourage the company to be run with financially sound best practices.

To allow the financial institution to affect the decision-making of the borrower.

To make the monitoring process more efficient, as the lender can determine creditworthiness based on whether any covenants have been breached.

11

Stampedes A/R turnaround days and payables turnaround days are higher and lower than the industry benchmarks respectively. Despite this, why is this not considered a warning signal against lending to the company?

Review Later

Stampedes credit application is over-secured so small warning signals like these ratios are ultimately insignificant to the application.

Stampede purposely extends favorable payment terms to one of their key customers as part of its business strategy.

Stampedes performance ratios are not far enough from industry benchmarks to be a concern.

Stampede operates at a large enough scale that we are assured that loan payments will be made, despite suboptimal performance ratios.