CCA Collateral Analysis and Valuation Flashcards
6 cards from real CCA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 CCA Collateral Analysis and Valuation flashcards as text
What does it mean for a lender to have a 'perfected security interest' in collateral?
Answer: The lender has properly filed a UCC financing statement, giving public notice of its lien and priority over other creditors
Perfection of a security interest through UCC filing establishes the lender's legal claim and priority, ensuring the lender can enforce its rights against third parties and in bankruptcy.
Why do lenders typically apply an 'advance rate' or 'haircut' when valuing accounts receivable as collateral?
Answer: To account for ineligible receivables, concentration risk, and potential collection shortfalls when estimating recoverable collateral value
Advance rates discount gross receivables to exclude ineligible amounts (e.g., aged over 90 days, cross-aged, contra accounts) and create a margin of safety for the lender.
In asset-based lending (ABL), which two assets typically form the borrowing base for a revolving credit facility?
Answer: Accounts receivable and inventory
ABL revolving facilities are typically secured by eligible accounts receivable and inventory, with the borrowing base recalculated periodically based on current asset levels.
What is a 'blanket lien' in commercial lending?
Answer: A security interest that covers all of a borrower's assets, both current and future
A blanket lien encumbers all present and future assets of the borrower, giving the lender broad collateral coverage without specifying individual assets.
Which type of collateral appraisal approach is most appropriate for an income-producing commercial property?
Answer: Income capitalization approach, based on the property's net operating income and cap rate
The income capitalization approach values income-producing properties based on their ability to generate net operating income, which directly reflects the economic value to investors.
What is 'cross-collateralization' in a commercial lending arrangement?
Answer: Using collateral from one loan to secure an unrelated loan with the same lender, so default on either loan gives the lender rights to all pledged assets
Cross-collateralization links multiple loans under one collateral pool, strengthening the lender's position by allowing recovery from any pledged asset regardless of which specific loan defaulted.