• Match the correct descriptions to each of the three components of credit administration.

Documentation Monitoring Re-classifying

It involves undertaking regular reviews of a borrower's financial statements and evaluating changes in a borrower's business. It provides timely, relevant and thorough information for loan approval, security and monitoring. It involves determining new level of credit risk associated with a borrower.

• Which of the following statements is NOT true about credit administration?

1. Credit administration is important for identifying problems in a borrower's account and reducing the risk of credit default.
2. Credit administration is about documentation, ongoing monitoring, and possibly re-classifying a borrower before a loan has been made.
3. Appropriate credit administration and documentation practices allow for better information for more informed decision regarding actions taken towards a borrower's account.
4. Proper credit documentation practices allow for more flexibility to respond to changes in a borrower's circumstances.

• Match the following credit documents into the appropriate categories.

Term sheet Annual review Monthly / quarterly report Loan agreement Commitment letter

Loan approval documentation Monitoring documentation

• Which of the following is the correct order of documentation submission in the loan approval process?

1. Loan application -> Term sheet -> Commitment letter -> Loan agreement
2. Loan application -> Commitment letter -> Term sheet -> Loan agreement
3. Loan application -> Term sheet -> Loan agreement -> Commitment letter
4. Term sheet -> Loan application -> Commitment letter -> Loan agreement

• What is a term sheet?

1. The formal contract between the borrower and creditor which includes all important information about the loan.
2. A formal, legally binding document presented to the loan applicant to show intent to enter an agreement from both parties.
3. The initial document required from the borrower when beginning the credit process, typically includes financial statements and a business plan.
4. A non-binding agreement given to the borrower that summarizes primary terms including the interest rate, time to maturity, and security.

• What are covenants?

1. The credit risk rating assigned to a borrower based on quantitative and qualitative measures.
2. Assets or property pledged to a lender as protection in the case of default.
3. Clauses in a loan agreement outlining what a borrower must maintain or what they are restricted from doing.
4. The amount of the loan approved for a borrower as stated in a loan agreement.

• Which of the following are monitoring documents commonly provided by a borrower on a monthly or quarterly basis? Select all correct answers.

1. Tax returns
2. Commitment letter
3. Unaudited financial statements
4. Compliance certificates

• Match the following descriptions with each of the components in the loan review process

Involves re-assessing any changes that have occurred within management that may impact the business' ability to tackle potential issues. Involves re-assessing the direction of the business, potential opportunities, and other issues the company is facing. Involves re-assessing any assets that are being used as protection in the case of default. Involves re-assessing the cash flow and financial position of the borrower.

Financial statement review Security review Management review Business review

• Which of the following is NOT a reason to perform an annual review on a borrower?

1. An annual review provides an opportunity to do a comprehensive re-assessment.
2. An annual review gives a borrower a sense of general loan parameters such as the interest rate, time to maturity, and security.
3. An annual review allows a lender to re-assess and meet a borrower's changing needs.
4. An annual review helps a lender identify a borrower's business trends, early warning signs and mitigate credit risk.

• Which of the following activities will be performed during a security review?

1. A re-assessment of borrower cash flows.
2. A re-assessment of personal and corporate guarantors.
3. A re-assessment of the corporate structure of the borrower.
4. A re-assessment of the strategy and decision-making process of the borrower.