Chapter 6 Flashcards

Loan Receivable

Money owed to a lender by a borrower; an asset on the lender's balance sheet.

Transaction Costs

Expenses incurred by lenders to originate and manage loans, including direct and indirect costs.

Direct Origination Costs

Expenses directly related to originating a loan, e.g., appraisal fees, credit report fees, and legal fees.

Indirect Origination Costs

Indirect expenses like salaries of loan officers and marketing expenses.

Origination Fees

Fees charged by lenders, typically a percentage of the loan amount, to cover origination costs.

Effective Interest Rate

The actual interest rate paid on a loan, considering compounding effects.

Impairment

Reduction in loan value due to the borrower’s inability to repay.

Expected Credit Loss Model

Estimation method for potential loan defaults, considering historical data and forecasts.

Effective Interest Rate

The actual interest rate paid on a loan, considering compounding effects.

Impairment

Reduction in loan value due to the borrower’s inability to repay.

Expected Credit Loss Model

Estimation method for potential loan defaults, considering historical data and forecasts.

Individual Basis

Assessment of credit risk for each borrower individually.

Collective Basis

Assessment of credit risk for a group of borrowers with similar characteristics.

Share Credit Risk Characteristics

Group of borrowers with similar financial and credit attributes.

Probability Weighted Outcome

Method to estimate expected credit loss by considering probabilities of different outcomes.

Time Value of Money

Concept that money today is worth more than in the future due to earning potential.

Reasonable and Supportable Information

Reliable, relevant data used to estimate credit losses.

Carrying Amount

Recorded amount of a loan receivable on the lender’s balance sheet.

Impairment Loss

Loss recognized when a loan receivable is impaired.

Off

Setting

Sale

Transfer of a loan receivable from one lender to another.

Secured Borrowing

Loan where the borrower provides collateral.

Receivable Financing

Using receivables as collateral for a loan.

Pledge (Hypothecation)

Borrower provides collateral without transferring ownership.

Assignment

Legal transfer of a receivable to another party.

Notification Basis

Borrower is informed that the receivable has been assigned.

Non

Notification Basis

Equity in the Assigned Receivable

Difference between receivable amount and amount paid by the assignee.

Factoring

Selling receivables to a factor in exchange for immediate cash.

With Recourse

Factor can seek payment from the transferor if the borrower defaults.

Without Recourse

Factor cannot seek payment from the transferor if the borrower defaults.

Factor

Financial institution that purchases receivables.

Transferor

Company that sells receivables to a factor.

Factor’s Holdback

Portion of receivable held by the factor until collection.

Receivable from Factor

Amount owed to the transferor after the factor's holdback is settled.

Regular Means of Financing

Factoring as a regular source of financing.

Casual Basis

Factoring as an occasional source of financing.

Settlement of Factor’s Holdback

Releasing the factor’s holdback after collection.

Cost of Factoring

Fee charged by the factor for purchasing receivables.

Securitization

Converting a pool of receivables into securities for trading.

Net Proceeds

Amount received after deducting factoring fees and costs.

Dishonored Notes

Notes receivable that remain unpaid at maturity.

Discounting of Notes Receivables

Selling a note to a financial institution at a discount.

Discounting of "Own" Note

Discounting a note issued by the lender