86 Questions
What is the primary purpose of requiring personal and/or corporate guarantees or other forms of third party support for loans to closely-held entities?
To provide additional sources of repayment in case the borrower defaults
Which of the following factors can limit the effectiveness of third party support for loans, according to the text?
The value, willingness, and enforceability of the third party support
Which of the following is a potential reason why owners of closely held companies may need or prefer to remove earnings from the company?
To maintain a high level of personal liquidity
When evaluating the value of a corporate guarantee as a secondary/tertiary repayment source, what should the lender do according to the text?
All of the above
Which of the following is a potential reason why companies that are part of closely held groups may easily transfer assets and repayment sources between related entities?
To conceal the true financial condition of the company
What is one potential reason why growing private companies may be thinly capitalized?
To fund the growth of the company
What is the primary function of a Letter of Credit (L/C) issued by the importer’s bank?
To substitute the bank's credit for that of the importer
In what circumstances are Standby L/Cs typically issued?
To act as a guarantee in commercial transactions
What is the relationship between the face amount of an L/C and the importer's obligation?
The face amount is paid by the importer to the bank
What do banks consider when providing a guaranty via Standby L/Cs?
Likelihood of default by the bank's customer
Why are Standby L/Cs sometimes necessary in municipal bond transactions?
As a guarantee against default in bond payments
What role does an issuing bank play in a Letter of Credit (L/C)?
Provides credit support for the importer's obligations
Why do banks issue Standby L/Cs mainly to their most creditworthy customers?
To reduce risks associated with nonperformance
What is one of the key functions of Standby L/Cs in construction contracts?
Protecting against nonpayment by contractors
What is a major role of Standby L/Cs in commercial transactions?
To act as a financial buffer against importer defaults
Which statement accurately describes the relationship between an importer, an issuing bank, and an exporter in a Letter of Credit (L/C) scenario?
The issuing bank substitutes credit between the exporter and importer.
Which of the following covenants should be included in a loan agreement to ensure the bank has access to timely financial information for a seasonal loan?
A covenant requiring the borrower to provide regular and timely financial statements
Which of the following financial ratios should a bank monitor for a permanent working capital loan?
All of the above
Under what circumstances should a bank require the borrower to maintain key person life insurance?
When the continued success of the company depends on one or two key individuals
Which of the following should be included in a covenant package to ensure the borrower is meeting its obligations?
A requirement for the borrower to provide timely delivery of information on contingent liabilities
What is the primary purpose of requiring personal and/or corporate guarantees or other forms of third-party support for loans to closely held entities?
To provide additional repayment sources in case of default
Which of the following should a lender do when evaluating the value of a corporate guarantee as a secondary/tertiary repayment source?
Analyze the financial condition of the guarantor
Which of the following is a potential reason why growing private companies may be thinly capitalized?
To maintain control over the company
Which of the following factors can limit the effectiveness of third-party support for loans, according to the text?
All of the above
Which of the following is a potential reason why owners of closely held companies may need or prefer to remove earnings from the company?
To fund personal expenses or investments
In the context of structuring and documenting credit exposures, what should a lender consider when reviewing a borrower's business plan and projections?
All of the above
Which of the following is the primary purpose of an operating agreement for a limited liability company (LLC)?
To establish the rules for the LLC's operations and designate a managing member
How often should a lender obtain a Certificate of Good Standing for a borrower's LLC?
Every two years at a minimum
What is the primary purpose of a Certificate of Good Standing for a limited liability company (LLC)?
To indicate the LLC's compliance with state reporting and fee requirements
What is the primary reason a lender should obtain a Certificate of Good Standing for a borrower's LLC?
To verify the LLC is in compliance with state requirements
What is the primary purpose of an LLC's operating agreement, according to the text?
To provide the rules under which the LLC will function and designate a managing member
What is the primary purpose of an acceleration clause in a loan agreement?
To allow the lender to demand immediate repayment of the entire loan balance upon an event of default, regardless of the original payment schedule.
Which type of loan allows the borrower to repeatedly borrow, repay, and re-borrow up to the committed amount?
Revolving credit
What is the primary purpose of a loan agreement?
To describe the lending arrangement and specify the rights and duties of the lender and borrower.
Which type of loan has a payment due date that is specified in the promissory note?
Time loan
What is a key difference between a revolving credit loan and a nonrevolving multiple advance loan?
Revolving credit allows the borrower to borrow, repay, and re-borrow up to the committed amount, while nonrevolving multiple advance does not.
What is the primary reason a lender would require the borrower to maintain key person life insurance?
To protect the lender's investment in the event of the death of a key employee.
What is the primary purpose of requiring personal and/or corporate guarantees or other forms of third-party support for loans to closely-held entities?
To strengthen the repayment sources available to the lender.
What is the primary purpose of an LLC's operating agreement, according to the text?
To establish the LLC's management structure and decision-making processes.
Which of the following should a lender consider when reviewing a borrower's business plan and projections?
The borrower's creditworthiness and ability to repay the loan.
What is a key function of Standby L/Cs in commercial transactions?
To provide a secondary source of repayment for the lender.
What is the preferred method for perfecting a security interest in documents?
Take possession of the documents
How can a secured party establish control over electronic chattel paper?
All of the above methods can be used to establish control over electronic chattel paper
What is the automatic method of perfecting a security interest in a deposit account if the account is with the lender's own institution?
Establish control over the account
What is the primary way to perfect a security interest in a security certificate?
Take possession of the security certificate
What is the primary method for perfecting a security interest in farm products?
Either file a UCC-1 or take possession
What is the key requirement for establishing control over electronic chattel paper?
All of the above requirements must be met to establish control
How can a secured party obtain control over a deposit account held at another institution?
Enter into a control agreement with the depository institution
What is the primary way to perfect a security interest in equipment?
Either file a UCC-1 or take possession
What is the key requirement for an 'authoritative copy' of electronic chattel paper?
All of the above requirements must be met
What is the primary way to perfect a security interest in an uncertificated security?
Establish control over the uncertificated security
What type of interests in real property could potentially take priority over your lien?
Easements
What is the term used to describe structures illegally situated on the real property of another person?
Encroachments
What is the purpose of obtaining a title insurance binder in real estate dealings?
To protect against undisclosed defects in title
Which of the following could negatively affect the collateral value of real property?
Environmental hazards
What are rights or privileges acquired over another party's land known as?
Easements
Which document protects against undisclosed defects in a property's title?
Title insurance binder
What term describes privileges granted for utility companies to install necessary lines on private property?
'Utility easements'
What factor could contribute to the devaluation of real property as mentioned in the text?
'Flood hazards'
'Encroachments' refer to structures illegally situated where?
'On another person's real property'
'Easements' are rights or privileges that a party may acquire over whose land?
'Another party's'
Which of the following types of intellectual property can be used as collateral under Article 9 of the Uniform Commercial Code (UCC)?
All of the above
What federal statute governs the protection of patents in the United States?
Patent Act
What is the primary requirement for a work to be eligible for copyright protection under the Copyright Act?
The work must be an original work of authorship fixed in a tangible medium
What is the term used to describe the process of perfecting a security interest in intellectual property collateral under Article 9 of the UCC?
Recordation
Which of the following types of intellectual property is protected by the Lanham Act?
Trademarks
What is the maximum term of protection for a utility patent issued in the United States?
20 years
What is the legal term used to describe the process of obtaining exclusive rights over an invention or creative work?
Patenting
Which federal agency is responsible for examining and issuing patents in the United States?
U.S. Patent and Trademark Office (USPTO)
What is the term used to describe the exclusive rights granted by a patent over an invention?
Patent monopoly
Which of the following types of works is not eligible for copyright protection under the Copyright Act?
Ideas or concepts
Which of the following is a key feature of a subordination agreement?
It establishes the priority of payment among multiple creditors
What is the primary function of a standby letter of credit in commercial transactions?
To provide payment in the event of non-performance by the applicant
In the context of intercreditor agreements, what is the role of a senior creditor?
To have a priority claim on the borrower's assets
What is the primary purpose of a comfort letter in a commercial transaction?
To provide assurance about a company's financial position or future prospects
Which of the following is a common feature of a subordination agreement?
It restricts the subordinated creditor from taking certain actions
What is the primary purpose of conducting a phased approach to an environmental assessment?
To obtain a reasonable perspective on the site's potential environmental problems
What does the text indicate is the typical scope of an environmental assessment?
It is determined by the environmental professional based on site conditions
What is one factor that can contribute to the devaluation of real property during an environmental assessment?
Presence of hazardous materials
What is a key consideration when evaluating the value of a corporate guarantee as a secondary/tertiary repayment source?
The creditworthiness of the guarantor
What is a key function of Standby L/Cs in commercial transactions, according to the text?
To protect the lender against the borrower's default
What is the primary purpose of requiring personal and/or corporate guarantees or other forms of third-party support for loans to closely-held entities?
To protect the lender against the borrower's default
What is a potential reason why companies that are part of closely held groups may easily transfer assets and repayment sources between related entities?
Lack of regulatory oversight
What is the primary purpose of an LLC's operating agreement, according to the text?
To define the rights and obligations of the members
What is the primary way to perfect a security interest in farm products, according to the text?
The text does not mention the primary way to perfect a security interest in farm products.
What is the primary purpose of obtaining a title insurance binder in real estate dealings?
To protect against undisclosed defects in the property's title
Learn about the importance of properly identifying and structuring repayment sources for credit exposures. Understand why asset sales may not always be a reliable source of repayment and how to evaluate one-time cash inflows.
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