CRC Dimension 6
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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 increase the collateral available to the lender
  • To make the loan more attractive to potential investors
  • To ensure the owners of the company have a personal stake in the success of the business
  • To provide additional sources of repayment in case the borrower defaults (correct)

    • 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 (correct)
  • The reputation of the third party
  • The legal structure of the third party
  • The size of the third party's balance sheet

    • 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 invest in unrelated business ventures
  • To maintain a high level of personal liquidity (correct)
  • To avoid paying corporate income taxes
  • To fund the growth of the company

    • When evaluating the value of a corporate guarantee as a secondary/tertiary repayment source, what should the lender do according to the text?

    <p>All of the above</p> Signup and view all the answers

    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?

    <p>To conceal the true financial condition of the company</p> Signup and view all the answers

    What is one potential reason why growing private companies may be thinly capitalized?

    <p>To fund the growth of the company</p> Signup and view all the answers

    What is the primary function of a Letter of Credit (L/C) issued by the importer’s bank?

    <p>To substitute the bank's credit for that of the importer</p> Signup and view all the answers

    In what circumstances are Standby L/Cs typically issued?

    <p>To act as a guarantee in commercial transactions</p> Signup and view all the answers

    What is the relationship between the face amount of an L/C and the importer's obligation?

    <p>The face amount is paid by the importer to the bank</p> Signup and view all the answers

    What do banks consider when providing a guaranty via Standby L/Cs?

    <p>Likelihood of default by the bank's customer</p> Signup and view all the answers

    Why are Standby L/Cs sometimes necessary in municipal bond transactions?

    <p>As a guarantee against default in bond payments</p> Signup and view all the answers

    What role does an issuing bank play in a Letter of Credit (L/C)?

    <p>Provides credit support for the importer's obligations</p> Signup and view all the answers

    Why do banks issue Standby L/Cs mainly to their most creditworthy customers?

    <p>To reduce risks associated with nonperformance</p> Signup and view all the answers

    What is one of the key functions of Standby L/Cs in construction contracts?

    <p>Protecting against nonpayment by contractors</p> Signup and view all the answers

    What is a major role of Standby L/Cs in commercial transactions?

    <p>To act as a financial buffer against importer defaults</p> Signup and view all the answers

    Which statement accurately describes the relationship between an importer, an issuing bank, and an exporter in a Letter of Credit (L/C) scenario?

    <p>The issuing bank substitutes credit between the exporter and importer.</p> Signup and view all the answers

    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?

    <p>A covenant requiring the borrower to provide regular and timely financial statements</p> Signup and view all the answers

    Which of the following financial ratios should a bank monitor for a permanent working capital loan?

    <p>All of the above</p> Signup and view all the answers

    Under what circumstances should a bank require the borrower to maintain key person life insurance?

    <p>When the continued success of the company depends on one or two key individuals</p> Signup and view all the answers

    Which of the following should be included in a covenant package to ensure the borrower is meeting its obligations?

    <p>A requirement for the borrower to provide timely delivery of information on contingent liabilities</p> Signup and view all the answers

    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?

    <p>To provide additional repayment sources in case of default</p> Signup and view all the answers

    Which of the following should a lender do when evaluating the value of a corporate guarantee as a secondary/tertiary repayment source?

    <p>Analyze the financial condition of the guarantor</p> Signup and view all the answers

    Which of the following is a potential reason why growing private companies may be thinly capitalized?

    <p>To maintain control over the company</p> Signup and view all the answers

    Which of the following factors can limit the effectiveness of third-party support for loans, according to the text?

    <p>All of the above</p> Signup and view all the answers

    Which of the following is a potential reason why owners of closely held companies may need or prefer to remove earnings from the company?

    <p>To fund personal expenses or investments</p> Signup and view all the answers

    In the context of structuring and documenting credit exposures, what should a lender consider when reviewing a borrower's business plan and projections?

    <p>All of the above</p> Signup and view all the answers

    Which of the following is the primary purpose of an operating agreement for a limited liability company (LLC)?

    <p>To establish the rules for the LLC's operations and designate a managing member</p> Signup and view all the answers

    How often should a lender obtain a Certificate of Good Standing for a borrower's LLC?

    <p>Every two years at a minimum</p> Signup and view all the answers

    What is the primary purpose of a Certificate of Good Standing for a limited liability company (LLC)?

    <p>To indicate the LLC's compliance with state reporting and fee requirements</p> Signup and view all the answers

    What is the primary reason a lender should obtain a Certificate of Good Standing for a borrower's LLC?

    <p>To verify the LLC is in compliance with state requirements</p> Signup and view all the answers

    What is the primary purpose of an LLC's operating agreement, according to the text?

    <p>To provide the rules under which the LLC will function and designate a managing member</p> Signup and view all the answers

    What is the primary purpose of an acceleration clause in a loan agreement?

    <p>To allow the lender to demand immediate repayment of the entire loan balance upon an event of default, regardless of the original payment schedule.</p> Signup and view all the answers

    Which type of loan allows the borrower to repeatedly borrow, repay, and re-borrow up to the committed amount?

    <p>Revolving credit</p> Signup and view all the answers

    What is the primary purpose of a loan agreement?

    <p>To describe the lending arrangement and specify the rights and duties of the lender and borrower.</p> Signup and view all the answers

    Which type of loan has a payment due date that is specified in the promissory note?

    <p>Time loan</p> Signup and view all the answers

    What is a key difference between a revolving credit loan and a nonrevolving multiple advance loan?

    <p>Revolving credit allows the borrower to borrow, repay, and re-borrow up to the committed amount, while nonrevolving multiple advance does not.</p> Signup and view all the answers

    What is the primary reason a lender would require the borrower to maintain key person life insurance?

    <p>To protect the lender's investment in the event of the death of a key employee.</p> Signup and view all the answers

    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?

    <p>To strengthen the repayment sources available to the lender.</p> Signup and view all the answers

    What is the primary purpose of an LLC's operating agreement, according to the text?

    <p>To establish the LLC's management structure and decision-making processes.</p> Signup and view all the answers

    Which of the following should a lender consider when reviewing a borrower's business plan and projections?

    <p>The borrower's creditworthiness and ability to repay the loan.</p> Signup and view all the answers

    What is a key function of Standby L/Cs in commercial transactions?

    <p>To provide a secondary source of repayment for the lender.</p> Signup and view all the answers

    What is the preferred method for perfecting a security interest in documents?

    <p>Take possession of the documents</p> Signup and view all the answers

    How can a secured party establish control over electronic chattel paper?

    <p>All of the above methods can be used to establish control over electronic chattel paper</p> Signup and view all the answers

    What is the automatic method of perfecting a security interest in a deposit account if the account is with the lender's own institution?

    <p>Establish control over the account</p> Signup and view all the answers

    What is the primary way to perfect a security interest in a security certificate?

    <p>Take possession of the security certificate</p> Signup and view all the answers

    What is the primary method for perfecting a security interest in farm products?

    <p>Either file a UCC-1 or take possession</p> Signup and view all the answers

    What is the key requirement for establishing control over electronic chattel paper?

    <p>All of the above requirements must be met to establish control</p> Signup and view all the answers

    How can a secured party obtain control over a deposit account held at another institution?

    <p>Enter into a control agreement with the depository institution</p> Signup and view all the answers

    What is the primary way to perfect a security interest in equipment?

    <p>Either file a UCC-1 or take possession</p> Signup and view all the answers

    What is the key requirement for an 'authoritative copy' of electronic chattel paper?

    <p>All of the above requirements must be met</p> Signup and view all the answers

    What is the primary way to perfect a security interest in an uncertificated security?

    <p>Establish control over the uncertificated security</p> Signup and view all the answers

    What type of interests in real property could potentially take priority over your lien?

    <p>Easements</p> Signup and view all the answers

    What is the term used to describe structures illegally situated on the real property of another person?

    <p>Encroachments</p> Signup and view all the answers

    What is the purpose of obtaining a title insurance binder in real estate dealings?

    <p>To protect against undisclosed defects in title</p> Signup and view all the answers

    Which of the following could negatively affect the collateral value of real property?

    <p>Environmental hazards</p> Signup and view all the answers

    What are rights or privileges acquired over another party's land known as?

    <p>Easements</p> Signup and view all the answers

    Which document protects against undisclosed defects in a property's title?

    <p>Title insurance binder</p> Signup and view all the answers

    What term describes privileges granted for utility companies to install necessary lines on private property?

    <p>'Utility easements'</p> Signup and view all the answers

    What factor could contribute to the devaluation of real property as mentioned in the text?

    <p>'Flood hazards'</p> Signup and view all the answers

    'Encroachments' refer to structures illegally situated where?

    <p>'On another person's real property'</p> Signup and view all the answers

    'Easements' are rights or privileges that a party may acquire over whose land?

    <p>'Another party's'</p> Signup and view all the answers

    Which of the following types of intellectual property can be used as collateral under Article 9 of the Uniform Commercial Code (UCC)?

    <p>All of the above</p> Signup and view all the answers

    What federal statute governs the protection of patents in the United States?

    <p>Patent Act</p> Signup and view all the answers

    What is the primary requirement for a work to be eligible for copyright protection under the Copyright Act?

    <p>The work must be an original work of authorship fixed in a tangible medium</p> Signup and view all the answers

    What is the term used to describe the process of perfecting a security interest in intellectual property collateral under Article 9 of the UCC?

    <p>Recordation</p> Signup and view all the answers

    Which of the following types of intellectual property is protected by the Lanham Act?

    <p>Trademarks</p> Signup and view all the answers

    What is the maximum term of protection for a utility patent issued in the United States?

    <p>20 years</p> Signup and view all the answers

    What is the legal term used to describe the process of obtaining exclusive rights over an invention or creative work?

    <p>Patenting</p> Signup and view all the answers

    Which federal agency is responsible for examining and issuing patents in the United States?

    <p>U.S. Patent and Trademark Office (USPTO)</p> Signup and view all the answers

    What is the term used to describe the exclusive rights granted by a patent over an invention?

    <p>Patent monopoly</p> Signup and view all the answers

    Which of the following types of works is not eligible for copyright protection under the Copyright Act?

    <p>Ideas or concepts</p> Signup and view all the answers

    Which of the following is a key feature of a subordination agreement?

    <p>It establishes the priority of payment among multiple creditors</p> Signup and view all the answers

    What is the primary function of a standby letter of credit in commercial transactions?

    <p>To provide payment in the event of non-performance by the applicant</p> Signup and view all the answers

    In the context of intercreditor agreements, what is the role of a senior creditor?

    <p>To have a priority claim on the borrower's assets</p> Signup and view all the answers

    What is the primary purpose of a comfort letter in a commercial transaction?

    <p>To provide assurance about a company's financial position or future prospects</p> Signup and view all the answers

    Which of the following is a common feature of a subordination agreement?

    <p>It restricts the subordinated creditor from taking certain actions</p> Signup and view all the answers

    What is the primary purpose of conducting a phased approach to an environmental assessment?

    <p>To obtain a reasonable perspective on the site's potential environmental problems</p> Signup and view all the answers

    What does the text indicate is the typical scope of an environmental assessment?

    <p>It is determined by the environmental professional based on site conditions</p> Signup and view all the answers

    What is one factor that can contribute to the devaluation of real property during an environmental assessment?

    <p>Presence of hazardous materials</p> Signup and view all the answers

    What is a key consideration when evaluating the value of a corporate guarantee as a secondary/tertiary repayment source?

    <p>The creditworthiness of the guarantor</p> Signup and view all the answers

    What is a key function of Standby L/Cs in commercial transactions, according to the text?

    <p>To protect the lender against the borrower's default</p> Signup and view all the answers

    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?

    <p>To protect the lender against the borrower's default</p> Signup and view all the answers

    What is a potential reason why companies that are part of closely held groups may easily transfer assets and repayment sources between related entities?

    <p>Lack of regulatory oversight</p> Signup and view all the answers

    What is the primary purpose of an LLC's operating agreement, according to the text?

    <p>To define the rights and obligations of the members</p> Signup and view all the answers

    What is the primary way to perfect a security interest in farm products, according to the text?

    <p>The text does not mention the primary way to perfect a security interest in farm products.</p> Signup and view all the answers

    What is the primary purpose of obtaining a title insurance binder in real estate dealings?

    <p>To protect against undisclosed defects in the property's title</p> Signup and view all the answers

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