CFI CBCA Loan Security Exam Questions With Complete Solutions.
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Course
CFI CBCA Loan Security
Institution
CFI CBCA Loan Security
Loan Security Learning Objectives - 01. Compare different types of security and assets used as
security
02. Determine the security value of different assets based on MAST principles
03. Discuss the role of legal counsel and the importance of legal representation
Security is a form of - insuranc...
Loan Security L earning Objectives - ✔✔ 01. Compare different types of security and assets used as security 02. Determine the security value of different assets based on MAST principles 03. Discuss the role of legal counsel and the importance of legal representation Secu rity is a form of - ✔✔ insurance that is provided by the borrower. • No loan should be granted if the lender expects security will have to be enforced or realized. • Security is taken as a final safeguard in case of default. Manage the risk of a borrower defaulting on the loan: - ✔✔ -Assess sources of loan repayment -Assess security Types of security - ✔✔ Direct • Real estate • Machinery and equipment • Inventory Indirect • Personal guarantees • Corporate guarantees • Let ters of comfort Direct security relates to - ✔✔ collateral that can be used to secure a loan. Two ways for a financial institution to secure its financing position using assets: - ✔✔ Fixed Charge: (Land, Buildings, Machinery) • Attaches to a specific item of the company's property. • The lender has legal right to the asset. • The charge fixes to the asset. Floating Charge: (Inventory, A/R, Marketable securities) • Attaches to a general class of assets. • Borrower can trade its assets during the ordinary course of business. • The charge would fix if there's an insolvency or a loan default. Two common ways to protect the lender with direct security: - ✔✔ Specific Collateral • Specific asset(s) • In the case of default, the lender takes ownership of the asset(s) General Security Agreement • All assets as a whole • In the case of default, the lender seizes the borrower's assets the most common form of indirect security. - ✔✔ A guarantee Here is a brief overview of three types of guarantees. - ✔✔ Limited guarantees Unlimited guarantees Personal • The guarantor is an individual. • The individual is personally responsible if the borrower is unable to repay the debt. • The lender has the ri ght to pursue the guarantor's personal assets. Corporate • The guarantor is a company. • The company is responsible if the borrower is unable to repay the debt. • The companies are related through ownership.
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