BUA 217 Quiz 2 (Created by AI, Fixed by me)

Positives of a separate business credit score

Allows better financing, vendor terms, and protection from personal credit impact

What are the 5 Cs of Business Credit?

Character, Capacity, Capital, Collateral, Conditions – factors influencing loan approval

What are the negatives of commercial auto loans

Higher rates, insurance requirements, and strict terms after the loan is granted

CAMELS ratings represent?

Capital, Asset Quality, Management, Earnings, Liquidity, Sensitivity to risk

How does the 1-5 bank rating system operate?

1 = Strong, 5 = Critically deficient

How often are UBPR reports conducted?

Annually, confidential to regulators

What are investment-grade assets?

Securities rated BBB or higher, like government bonds

What is the safety and soundness exam’s purpose?

It assesses loan portfolio quality and risk management

What is the loan policy credit risk appetite?

Defines bank’s acceptable risk levels in lending decisions

What are exceptions in loan policy?

Allow flexibility for strong borrowers who don't meet standard criteria

What is board approval for loan policy?

Board approves revisions to align with strategy and risk tolerance

What is loan pricing in policy?

Defines pricing and profit margin to ensure bank sustainability

What does avoiding conflicts of interest in loan policy ensure?

Ensures transparency and fairness in lending decisions

What is corporate governance?

Structures policies and controls to align with stakeholders’ interests

What can a small medical debt lack of repayment signal.

May signal unwillingness to repay or poor financial management

Why is the balance sheet key for showing good capital abilities?

Shows a business’s financial stability and capacity to repay

What is an ideal service Coverage Ratio?

1.2 or higher shows enough earnings to cover debt payments

What does DSCR below 1.2 signify?

Insufficient earnings to meet debt obligations

What does bracketing in real estate appraisals entail

It involves finding comparable properties to estimate a fair value

What is sensitivity analysis used for in expense management?

It is used to test the impact of variable/fixed costs on profitability

What is collateral?

A backup source of payment if borrower defaults

What does good character in loan decisions represent?

Trustworthiness and repayment intent

True or false, being one day late on a loan constitutes default status.

True

What is Dun & Bradstreet’s Paydex score?

A business credit score—80+ is low risk

What is the cash flow statement purpose?

Shows inflows/outflows, crucial for loan repayment evaluation

What on your public records has a negative impact?

Tax liens and bankruptcies negatively impact creditworthiness

Collateral appraisal methods?

Market comparison, income, and cost-based approaches

What are the USPAP components?

Ethical conduct, competency, and professional appraisal standards

What are some real estate appraiser qualifications?

Competence and ethical conduct

What is the debt service coverage ratio formula?

DSCR = Net Operating Income / Debt Service

How does cash flow analysis help lenders?

Helps assess business’s ability to repay loans

Loan brokers—do they fund loans?

No, they arrange loans but don’t provide funding

What is risk-based lending?

Pricing loans based on borrower’s risk profile

What are some vehicle appraisal methods?

Market comparisons, vehicle condition, age, and mileage

What is the m ax term for a commercial mortgage?

Typically 10-30 years depending on loan type

What does the 30-day clearance on commercial line of credit ensure?

That a line is cleared before new borrowing

What does an Evergreen line of credit do?

Automatically renews if terms are met

What does an accountant-prepared tax return do?

Provides accurate financial info for loan assessments

What are lines of credit for short-term needs used for?

Used for working capital, not capital-intensive purchases

Which crucial area for bank performance involves both the “aggregate level of risk and tolerance for risk”?

Risk philosophy

Which crucial area for bank performance involves managing and/or mitigating risk?

Risk management framework

Which crucial area for bank performance is important for setting a bank on the right course?

Overall business strategy

Which crucial area for bank performance involves keeping watch on the “bank's strategic objectives are being accomplished within the parameters of its risk management framework”?

Monitoring