How would a significant downgrade in the SBA's credit rating primarily affect KOTA Longboards, LLC's financial risk assessment, considering their loan agreement's interest rate adj... How would a significant downgrade in the SBA's credit rating primarily affect KOTA Longboards, LLC's financial risk assessment, considering their loan agreement's interest rate adjustments based on WSJ Prime plus 2.25% after five years and an SBA guarantee on 85% of the loan balance?
Understand the Problem
The question asks how a significant downgrade in the SBA's credit rating would primarily affect KOTA Longboards, LLC's financial risk assessment, given their loan agreement includes interest rate adjustments based on the WSJ Prime plus 2.25% after five years and an SBA guarantee on 85% of the loan balance. We need to identify the most direct and significant impact of the SBA downgrade on KOTA's financial risk.
Answer
It would increase KOTA Longboards, LLC's financial risk assessment, potentially leading to higher borrowing costs.
A downgrade in the SBA's credit rating would likely increase KOTA Longboards, LLC's financial risk assessment. This could lead to higher borrowing costs when the loan's interest rate adjusts after five years, even with the SBA guarantee, as lenders may perceive the loan as riskier.
Answer for screen readers
A downgrade in the SBA's credit rating would likely increase KOTA Longboards, LLC's financial risk assessment. This could lead to higher borrowing costs when the loan's interest rate adjusts after five years, even with the SBA guarantee, as lenders may perceive the loan as riskier.
More Information
A downgrade in credit rating increases borrowing costs due to a perceived increase in risk.
Tips
The interest rate increase is due to the perceived increase in risk not directly because of the downgrade.
Sources
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