You are a commercial loan officer with a local bank Your cus

You are a commercial loan officer with a local bank. Your customer is a general contractor in business for several years looking for short-term funding for items like payroll, etc. Accounts receivable aging show sufficient current receivables are more than adequate to cover the requested loan. What type of loan structure would you offer and what affirmative or negative covenants might you include on the loan agreement.

Solution

A secured loan can be offered to the customer making the Accounts Receivables of the customer as a security.

Affirmative covenants may be, to maintain proper financial records, to pay all statutory taxes.

Negative covenants may be, maintenace of accounts receivable turnover ratio, maintenace of quick ratio, maintenance of debt service coverage ratio, etc.