CCA Loan Structuring & Underwriting 2

Question 1

A distributor needs financing for seasonal inventory build-up that converts to cash within 6 months. Which structure best matches the need?

Accepted Answer

Seasonal revolving line of credit

Answer

Seasonal working capital needs should be financed with a revolving line repaid from conversion of inventory and receivables to cash.

Question 2

What is the primary purpose of an annual clean-up (rest) period on a working capital line of credit?

Accepted Answer

To confirm the line is not funding permanent working capital or long-term assets

Answer

Requiring a zero balance for a period (e.g., 30 consecutive days) shows the line is truly self-liquidating and not funding permanent needs.

Question 3

A borrowing base allows 80% of eligible receivables. Which receivables are typically excluded as ineligible?

Accepted Answer

Accounts more than 90 days past invoice date

Answer

Aged receivables (commonly over 90 days) are excluded because their collectability is doubtful.

Question 4

A borrower has EBITDA of $2.0 million, unfinanced capex of $400,000, cash taxes of $200,000, and total debt service of $1.0 million. What is the fixed charge coverage ratio (EBITDA − capex − taxes) / debt service?

Accepted Answer

1.40x

Answer

($2.0M − $0.4M − $0.2M) / $1.0M = 1.40x.

Question 5

Which repayment source is generally considered the primary source for a commercial term loan financing equipment?

Accepted Answer

Cash flow from operations

Answer

Operating cash flow is the primary repayment source; collateral and guarantees are secondary and tertiary sources.

CCA - Certified Credit Analyst Practice Test

CCA - Certified Credit Analyst Practice Test

CCA Loan Structuring & Underwriting 2