Question

QUESTION 6

Why is collateral a ready source of support and the secondary source of repayment for commercial loans made by a community bank?

		Community banks’ commercial loans often provide funds for borrowers to acquire assets
		Community banks have a policy preference for unsecured commercial loans
		Community banks have a policy preference for personally guaranteed commercial loans
		Community banks assume the primary source of repayment will always be sufficient as a means of commercial loan support.

Answer 1

Collateral is a property or other asset that a borrower offers as a way for a lender to secure the loan. If the borrower stops making the promised loan payments, the lender can seize the collateral to recoup its losses. Since collateral offers some security to the lender should the borrower fail to pay back the loan, loans that are secured by collateral typically have lower interest rates than unsecured loans. A lender's claim to a borrower's collateral is called a lien.

Here the answer is option 3 .

Community banks have a policy preference for personally guaranteed commercial loans .