Corporate Banking and Commercial Finance Flashcards
7 cards from real CBP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Corporate Banking and Commercial Finance flashcards as text
Asset-based lending (ABL) determines loan availability primarily based on:
Answer: The liquidation value of eligible collateral assets such as receivables and inventory
ABL structures loan availability around a borrowing base calculated from eligible receivables and inventory at defined advance rates, making collateral value the primary determinant.
Commercial paper is best described as:
Answer: An unsecured short-term debt instrument issued by highly rated corporations to fund working capital
Commercial paper is an unsecured, short-term promissory note issued by creditworthy corporations, typically maturing in 270 days or less, used to fund short-term obligations.
A bridge loan in corporate finance is typically used to:
Answer: Provide temporary short-term financing until permanent financing is arranged
Bridge loans provide interim financing to span a gap—for example, until a bond issuance closes, an M&A deal completes, or a real estate sale proceeds are received.
In commercial finance, factoring involves:
Answer: A company selling its accounts receivable to a financial institution at a discount for immediate cash
Factoring accelerates cash flow by allowing companies to sell outstanding receivables to a factor at a discount, receiving immediate cash rather than waiting for customer payment.
A Debt Service Coverage Ratio (DSCR) of 1.25x means the borrower:
Answer: Generates $1.25 of operating income for every $1.00 of required debt service payments
A DSCR of 1.25x indicates the company generates 25% more cash flow than needed to cover all debt service, providing a meaningful cushion for lenders.
Mezzanine financing in the corporate capital structure is best described as:
Answer: A hybrid instrument combining features of debt and equity, subordinated to senior debt
Mezzanine financing sits between senior debt and equity, offering higher risk and return, and often includes equity participation features such as warrants or conversion rights.
Working capital loans are primarily designed to finance:
Answer: Day-to-day operational needs such as inventory purchases and accounts receivable cycles
Working capital loans fund a company's short-term operational needs, bridging the timing gap between cash outflows for inventory and cash inflows from customer collections.