CBP Corporate Banking and Commercial Finance 2

Question 1

Asset-based lending (ABL) determines loan availability primarily based on:

Accepted Answer

The liquidation value of eligible collateral assets such as receivables and inventory

Answer

ABL structures loan availability around a borrowing base calculated from eligible receivables and inventory at defined advance rates, making collateral value the primary determinant.

Question 2

Commercial paper is best described as:

Accepted Answer

An unsecured short-term debt instrument issued by highly rated corporations to fund working capital

Answer

Commercial paper is an unsecured, short-term promissory note issued by creditworthy corporations, typically maturing in 270 days or less, used to fund short-term obligations.

Question 3

A bridge loan in corporate finance is typically used to:

Accepted Answer

Provide temporary short-term financing until permanent financing is arranged

Answer

Bridge loans provide interim financing to span a gap—for example, until a bond issuance closes, an M&A deal completes, or a real estate sale proceeds are received.

Question 4

In commercial finance, factoring involves:

Accepted Answer

A company selling its accounts receivable to a financial institution at a discount for immediate cash

Answer

Factoring accelerates cash flow by allowing companies to sell outstanding receivables to a factor at a discount, receiving immediate cash rather than waiting for customer payment.

Question 5

A Debt Service Coverage Ratio (DSCR) of 1.25x means the borrower:

Accepted Answer

Generates $1.25 of operating income for every $1.00 of required debt service payments

Answer

A DSCR of 1.25x indicates the company generates 25% more cash flow than needed to cover all debt service, providing a meaningful cushion for lenders.

(CBP) Certified Banking Professional Practice Test

(CBP) Certified Banking Professional Practice Test

CBP Corporate Banking and Commercial Finance 2