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Credit Analysis and Lending Flashcards

7 cards from real CBP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Credit Analysis and Lending flashcards as text

  1. Which of the following is an example of a 'negative covenant' in a loan agreement?

    Answer: Borrower must not incur additional debt above a specified threshold

    Negative covenants restrict borrower actions (such as incurring additional debt, paying dividends, or selling assets) to protect the lender's position.

  2. The 'times interest earned' ratio measures:

    Answer: A borrower's ability to cover interest expense from operating earnings

    Times interest earned (TIE) equals EBIT divided by interest expense, showing how many times earnings cover the interest obligation.

  3. In credit scoring models, which factor typically carries the most weight in determining a consumer's FICO score?

    Answer: Payment history

    Payment history accounts for approximately 35% of a FICO score, making it the single most influential factor in credit scoring.

  4. A 'subordination agreement' in lending requires that:

    Answer: A junior creditor agrees that its claim ranks below the senior lender's claim

    A subordination agreement establishes that a junior lien holder will not be repaid until the senior lender's debt is fully satisfied.

  5. Which of the following best describes 'global cash flow analysis' in small business lending?

    Answer: Combining the business and personal financial cash flows of the owner to assess total debt service capacity

    Global cash flow analysis combines business and personal income, expenses, and debt obligations of the owner(s) to assess total repayment capacity.

  6. When a bank 'charges off' a loan, it means the bank:

    Answer: Removes the loan from its books as an asset and records it as a loss

    A charge-off is an accounting action where the bank writes the uncollectible loan off its books as a loss, though collection efforts may continue.

  7. The purpose of requiring a 'personal financial statement' from a small business owner in the loan underwriting process is to:

    Answer: Assess the owner's personal net worth and potential to support the business loan as a guarantor

    Personal financial statements reveal the owner's assets, liabilities, and net worth, which are critical when the owner guarantees the business loan.