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

4 crucial areas for bank performance?

Placeholder for your 4 areas from the article

Positives of a separate business credit score?

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

5 Cs of Business Credit?

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

Negatives of commercial auto loans?

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

Corporate Governance red flags?

Placeholder for your content—4 red flags

CAMELS ratings represent?

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

1-5 bank rating system?

1 = Strong, 5 = Critically deficient

UBPR report frequency?

Annually, confidential to regulators

Investment-grade assets?

Securities rated BBB or higher, like government bonds

Safety and Soundness exam purpose?

Assesses loan portfolio quality and risk management

Loan policy credit risk appetite?

Defines bank’s acceptable risk levels in lending decisions

Exceptions in loan policy?

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

Board approval for loan policy?

Board approves revisions to align with strategy and risk tolerance

CRA rating type?

Public—assesses bank’s service to low-income communities

Loan pricing in policy?

Defines pricing and profit margin to ensure bank sustainability

Conflict of interest in loan policy?

Ensures transparency and fairness in lending decisions

Corporate governance?

Structures policies and controls to align with stakeholders’ interests

5 Cs of Credit?

Character, Capacity, Capital, Collateral, Conditions—key in loan decision

Google search for loan applicant character?

Reveals potential red flags, like legal issues or poor financial behavior

Small medical debt concern?

May signal unwillingness to repay or poor financial management

Why is the balance sheet key for capital?

Shows a business’s financial stability and capacity to repay

Service Coverage Ratio standard?

1.2 or higher shows enough earnings to cover debt payments

DSCR below 1.2?

Below 1.0 means insufficient earnings to meet debt obligations

Bracketing in real estate appraisals?

Finding comparable properties to estimate fair value

Sensitivity analysis in expense management?

Tests impact of variable/fixed costs on profitability

Collateral as secondary repayment source?

Backup source if borrower defaults

Character in loan decisions?

Trustworthiness and repayment intent

One day late on loan?

Considered in default status after one missed payment

Primary source of repayment?

Cash flow from operations, essential for loan repayment

Dun & Bradstreet’s Paydex score?

A business credit score—80+ is low risk

Factors influencing business credit score?

Payment history, credit utilization, and public records

Cash flow statement purpose?

Shows inflows/outflows, crucial for loan repayment evaluation

Public records on loans?

Tax liens and bankruptcies negatively impact creditworthiness

Collateral appraisal methods?

Market comparison, income, and cost-based approaches

USPAP components?

Ethical conduct, competency, and professional appraisal standards

Real estate appraiser qualifications?

Standards for competence and ethical conduct

Debt service coverage ratio formula?

DSCR = Net Operating Income / Debt Service

Cash flow analysis for lenders?

Helps assess business’s ability to repay loans

Loan brokers—do they fund loans?

No, they arrange loans but don’t provide funding

Global cash flow for sole proprietor?

Combines business and personal cash flows for loan assessment

Risk-based lending?

Pricing loans based on borrower’s risk profile

Used vehicle appraisal methods?

Market comparisons, vehicle condition, age, and mileage

Max term for a commercial mortgage?

Typically 10-30 years depending on loan type

30-day clearance on commercial line of credit?

Ensures line is cleared before new borrowing

Evergreen line of credit?

Automatically renews if terms are met

Loan repayment during operating cycle?

Repay with cash generated during the business’s natural cycle

Accountant-prepared tax return importance?

Provides accurate financial info for loan assessments

Lines of credit for short-term needs?

Used for working capital, not capital-intensive purchases