major risks that a lender will face by lending money to company that have pessimistic cash...
major risks that a lender will face by lending money to company that have pessimistic cash flow budget.
Homework Answers
The major risks a lender will face by lending money to a company that have pessimistic cash flow Budget is the risks on non payment or delayed payment of the periodic installment part and the principal pay back as per schedule. The non payment risk may be for a period till the cash flow situation improves or the borrower may default completely and the whole loan amount may be uncollectible unless the loan is secured against a collateral asset of the company.
The stage of the company is also very important, if a start up company is facing cash flow problem, that may be temporary and the cash flow situation may improve as the start up ramps up operations very rapidly. Here the risk of non recovery of interest and principal installments may be for a limited period. However, for a matured organization, prolonged cash flow issue indicates a deeper crisis and higher risk of default.
A lender should carefully review the cash flow risks and lend against security of collateral in cases where the risk is high.
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major risks that a lender will face by lending money to company
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