CLFP Credit Analysis & Risk Assessment 2

Question 1

What is 'adverse selection' in the equipment finance industry?

Accepted Answer

The tendency for higher-risk borrowers to seek financing more aggressively, skewing a portfolio toward riskier credits

Answer

The deliberate selection of underperforming equipment for leasing

Answer

A lender's practice of targeting weak competitors

Answer

The selection of unfavorable lease terms by lessees

Question 2

What is 'accounts receivable (A/R) aging' analysis used for in credit underwriting?

Accepted Answer

To assess how quickly the lessee collects payments from its own customers, indicating cash flow quality

Answer

To determine the age of leased equipment

Answer

To measure how long overdue payments have been outstanding on the lease

Answer

To calculate the lessor's own collection efficiency

Question 3

What is 'cash flow from operations' (CFO) and why is it the most important financial statement metric for lease underwriters?

Accepted Answer

CFO is the cash generated by core business operations, and it directly shows whether a lessee can fund lease payments without relying on asset sales or new debt

Answer

CFO is the cost of financing operations and represents the lease expense

Answer

CFO measures customer payment patterns only

Answer

CFO is the lessor's cost of funds for a transaction

Question 4

What is a 'blanket lien' (also called an all-asset lien) in equipment financing?

Accepted Answer

A UCC filing that gives the secured party an interest in all of the debtor's assets, present and future

Answer

A lien on a specific piece of equipment only

Answer

A lien on real property used as collateral

Answer

A government lien for unpaid taxes

Question 5

What does 'global cash flow analysis' mean in underwriting?

Accepted Answer

Analyzing cash flow from all entities and individuals (business + guarantors) to assess total repayment capacity

Answer

Reviewing international currency flows for a multinational lessee

Answer

Analyzing the global equipment market for residual values

Answer

Calculating total payments across all leases in a portfolio

Question 6

What is a 'covenant lite' (cov-lite) structure in equipment financing?

Accepted Answer

A financing arrangement with few or no financial maintenance covenants, giving the borrower more flexibility

Answer

A lease with simplified documentation only

Answer

A structure requiring only one financial covenant

Answer

A government-guaranteed loan with reduced requirements