Commercial Lending Principles Flashcards
7 cards from real Banking Exam practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Commercial Lending Principles flashcards as text
Which of the following best describes 'recourse' in a commercial loan?
Answer: The lender's right to pursue the borrower's other assets beyond the collateral if the collateral is insufficient
In a recourse loan, the lender can pursue the borrower's personal or additional business assets if the collateral does not fully satisfy the debt upon default.
A borrower's quick ratio (acid-test ratio) excludes which asset from the calculation?
Answer: Inventory
The quick ratio excludes inventory because it may not be quickly convertible to cash, providing a more conservative view of short-term liquidity than the current ratio.
What is the role of a guaranty in commercial lending?
Answer: It provides a secondary source of repayment by making a third party liable for the debt
A guaranty is a promise by a third party (guarantor) to repay the loan if the primary borrower defaults, serving as an additional repayment source.
Under the uniform commercial code (UCC), what document does a lender file to perfect a security interest in personal property?
Answer: Financing statement (UCC-1)
A UCC-1 financing statement is filed with the appropriate state office to publicly perfect a lender's security interest in a borrower's personal property collateral.
A commercial lender is analyzing a company's working capital. Which formula is correct?
Answer: Current assets minus current liabilities
Working capital equals current assets minus current liabilities, measuring the short-term liquidity available to fund day-to-day operations.
What distinguishes a 'term loan' from a 'revolving credit facility' in commercial banking?
Answer: Term loans disburse a lump sum repaid on a fixed schedule; revolving facilities allow repeated borrowing up to a limit
A term loan provides a one-time disbursement repaid over a set schedule, while a revolving facility lets borrowers draw, repay, and re-borrow funds up to an approved limit.
When evaluating commercial loan applications, what does the acronym 'CAMELS' refer to in bank regulatory examinations?
Answer: Capital, Assets, Management, Earnings, Liquidity, Sensitivity
CAMELS stands for Capital adequacy, Asset quality, Management, Earnings, Liquidity, and Sensitivity to market risk—the six components used by regulators to rate bank health.