MID TERM CREDIT COLLECTION

Question 1

is a procedure undertaken by a financial institution to vet a potential client’s ability to pay back a loan.

Answer 1

Credit investigation

Question 2

(referred to as background investigations) - seek information about an applicant’s employment, criminal, and personal history to investigate behavioral reliability, integrity, and personal adjustment.

Answer 2

Background evaluations

Question 3

is a tool used by banks or financial
institutions to gather relevant information to determine whether an applicant will qualify for a loan or not.

Answer 3

CI/BI

Question 4

A ________can prevent loan
delinquency problems and ensure
profits.

Answer 4

thorough CI/BI

Question 5

A ________ can lead to loss
of income due to non-collection of
loan installments, or suspension of loan
operations due to slow rotation of
loanable funds.

Answer 5

poorly done CI/BI

Question 6

The Account officer interviews the applicant and helps fill out the Loan Application form.

Answer 6

Step 1: Loan Application

Question 7

The account officer (AO) gathers information from references
to assess character or reputation using the following indicators:
1.) Stability
2.) Entrepreneurship
3.) Reputation
4.) Repayment Behavior

Answer 7

Step 2: Character/Risk Analysis

Question 8

whether to recommend the applicant for a loan or NOT.

Answer 8

Account Officer should decide during the
loan application process

Question 9

AO uses the ___________ to
determine the maximum loan
entitlement an applicant can afford to
pay.

Answer 9

Step 3: Cash Flow Preparation/Analysis

Answer 10

Step 4: Prepare/Finalize CI/BI Report

Question 11

is the primary basis for evaluating loan applications and establishes whether the
applicant deserves a loan.

Answer 11

Character

Question 12

establishes the maximum loan entitlement an applicant can afford to pay.

Answer 12

Repayment Capacity

Question 13

is an asset pledged by a borrower to
a lender until a loan is paid
back.

Answer 13

Collateral

Question 14

items are assets or liabilities that do not appear on a company’s balance sheet
(Investopedia).

Answer 14

Off- Balance sheet (OBS)

Question 15

-collateral limits a lender’s losses by giving protection against the partial or total loss of resources.

Answer 15

Protection against risk

Question 16

Collateral is also a screening device
(next to several other screening
devices built into a loan contract, for
example, the interest rate).

Answer 16

Screening

Question 17

What happens to a collateral in case of default?

Answer 17

1. The Lender can seize the colateral
2. The Lender may sell the collateral
3. Your credit score will be negativbely impacted
   4.You may still owe money

Question 18

In case of a borrower’s
default, the lender will typically send a notice of default and demand payment within a certain time frame.

Answer 18

Repossession

Question 19

a matter of a certified transfer of the document testifying ownership.

Answer 19

A chattel mortgage

Question 20

is personal property that is movable
between locations, as opposed to real
property, which has a fixed location.
Common examples include mobile homes,
furniture, and automobiles (Investopedia).

Answer 20

Chattel

Question 21

can be easily pledged
under a chattel mortgage, but if they are
seized, then business activities could be
severely disrupted.

Answer 21

Tools and equipment

Question 22

Some of the most obvious borrower criteria of preferability of different
types of collateral are:

Answer 22

transaction costs

impact on current household and enterprise affairs

social exposure

Question 23

refers to real, or physical,
property, and can include
land, buildings, air rights
above the land, and
underground rights below
the land.

Answer 23

Real Estate

Question 24

It refers to manufacturing plant &
machinery, trucks, drilling rigs, presses,
forklifts, and similar items— applicable to
long-term loans.

Answer 24

Plant and Equipment

Question 25

This is another person with adequate personal wealth who agrees to pay back the loan if the business fails and defaults on the loan repayments.

Answer 25

GUARANTOR

Question 26

A collateral assignment of _________ is a conditional assignment appointing a lender as an assignee of a policy. Essentially, the lender has a claim to some or all of the death benefit until the loan is repaid. The death benefit is used as collateral for a loan.

Answer 26

LIFE INSURANCE POLICIES

Question 27

is a provision a lender puts in a business loan agreement that requires owners to be personally responsible for their company’s debt in case of default.

Answer 27

Personal Guarantee

Question 28

Remember!!

Answer 28

Other items can be used as collateral, including:  Investment documents (such as share certificates and debenture certificates)  Antique furniture  Gold, silver, and other valuable jewelry  Rare and valuable works of art  Appliances

Question 29

Types of financial collateral you can use to secure a loan for your business

Answer 29

cce inventory equioments real estate personal property IP

Question 30

is responsible for reviewing and evaluating loan applications to ensure that they meet the lending criteria of the financial institution. is usually composed of experienced professionals who have a good understanding of lending practices and risk management. responsible for assessing the risks associated with the loan and recommending appropriate loan terms and conditions. is the final decision-making authority on loan approvals, and its decisions are binding.

Answer 30

The loan committee:

Question 31

The committee is usually chaired by a ___________ who has the authority to approve loans on behalf of the institution.

Answer 31

senior executive

Question 32

The committee members are selected based on their :

Answer 32

expertise in lending practices, risk management, and financial analysis.

Question 33

The loan committee can help financial institutions manage their risks better by ensuring that all loan applications are thoroughly reviewed and assessed for risk.

Answer 33

Improved risk management

Question 34

The loan committee can help ensure that loan decisions are consistent and based on objective criteria rather than subjective factors.

Answer 34

Consistent decision-making

Question 35

The loan committee can help ensure that loan approvals are made in accordance with regulatory requirements and internal policies and procedures.

Answer 35

Enhanced accountability

Question 36

The loan committee can help ensure that loan applicants receive prompt and professional service and that their loan applications are processed efficiently.

Answer 36

Better customer service

Question 37

some institutions may choose to delegate loan approval authority to individual loan officers or credit analysts. This approach can be more efficient but may also result in inconsistent decision-making and increased risk. Another alternative is to use automated loan approval systems that use algorithms and data analysis to assess loan applications. This approach can be faster and more objective, but it may also lack the human judgment and expertise that a loan committee can provide

Answer 37

Alternatives to a Loan Committee

Question 38

is a numerical representation of your creditworthiness based on the borrower’s credit history. It is calculated based on various factors such as payment history, credit utilization, length of credit history, and types of credit accounts.

Answer 38

Credit score

Question 39

indicates that you are a high- risk borrower and may have difficulty repaying your loans.

Answer 39

A poor credit score

Question 40

indicates that you are a responsible borrower and are likely to repay your loans on time. It can help you to qualify for loans with better interest rates and favorable terms.

Answer 40

A good credit score

Question 41

One of the most important factors that loan committees consider when evaluating loan applications is

Answer 41

the debt-to-income ratio (DTI).

Question 42

can be a red flag for lenders, indicating that the borrower may have difficulty making payments on the loan.

Answer 42

A high DTI

Question 43

is a financial metric that compares a borrower's monthly debt payments to their monthly income. Lenders use this ratio to evaluate a borrower's ability to repay a loan.

Answer 43

Debt-to-income ratio

Question 44

What are the alternatives to the Debt-to-Income Ratio?

Answer 44

lenders may look at your credit score, employment history, or assets when evaluating your loan application.

Question 45

is a crucial step in the loan approval process. It involves assessing the value of the assets that a borrower pledges as security for the loan.

Answer 45

Collateral and asset evaluation

Question 46

which helps them decide whether to approve or reject the loan application.

Answer 46

The loan committee evaluates the collateral to determine its worth,

Question 47

is essential because it provides a lender with security in case a borrower defaults on their loan.

Answer 47

Importance of Collateral evaluation

Question 48

Can take many forms, including real estate, vehicles, equipment, stocks, and bonds. The type of collateral required depends on the type of loan and the lender's policy.

Answer 48

Types of Collateral

Question 49

There are various methods of valuing collateral, including appraisals, market value, and book value.

Answer 49

Valuation Method

Question 50

is the ratio of the loan amount to the value of the collateral.

Answer 50

Loan to Valuation ratio

Question 51

signifies that the borrower has pledged assets that are worth less than the loan amount.

Answer 51

high LTV ratio

Question 52

indicates that the borrower has pledged assets that are worth more than the loan amount. Lenders prefer a __________ as it reduces their risk in case of default.

Answer 52

low LTV ratio