6 real property is land and anything built or growing

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6 Real property is land and anything built or growing on the land. Personal property is any property that is not real prop- erty. The distinction between the two types can be confusing because property can be changed from real to personal (for example, agricultural crops are real property until harvested) and from personal to real (for example, lumber is personal property until it is used to construct a building). Fixtures are a special type of personal property-fixtures are firmly attached to real property but can be removed without impairing the real property.
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Module 4 I Credit Risk Analysis and Interpretation 4-22 :::.m:a.:in loan quality; that is, to ensure adequate cash flow from the loan (interest and principal ts). Loan covenants can help the lender detect deteriorating loan quality as covenants the lender to monitor the loan and receive early warnings when borrowers run into financial - . Loan covenants can also prevent deteriorating loan quality by limiting the borrower's - r to avoid situations leading to financial trouble. If a borrower violates one or more cov- _the lender can consider the loan in default and change the loan pricing (increase the inter- ~ or alter the repayment terms. In the extreme, the lender can demand repayment in full. a- borrowers are riskier and their loan covenants would likely be more restrictive. There are ypes of common loan covenants. ants that require the borrower to take certain actions Lenders often require that .ers take certain actions to help the lender monitor the loan quality and to ensure that the 'er continues to operate smoothly and repay the loan in the event of loss of the original ~ or of indispensable owners or managers. Borrowers are often required to: mit financial statements at least annually (or more frequently for riskier borrowers); a 'ant of this covenant relates to loans collateralized by accounts receivable when the bor- 'er is often required to submit monthly aging schedules for its receivables . . Iaintain hazard and content insurance on inventory, plant, and equipment. y all taxes and other required operating fees and licenses. - .oid any private or governmental liens on the property. ants that restrict the borrower from taking certain actions The lender might use venants to prevent the borrower from taking certain actions unless the lender gives prior "al.Commonly restricted actions include: anging the management team easing dividends, owners' withdrawals, and management salaries . laking major investments or capital expenditures . erging with or acquiring other entities -aking on additional loans or debt to ensure that the borrower does not diminish the quality . the original loan ants that require the borrower to maintain specific financial conditions Lenders require borrowers to maintain certain levels in key financial ratios such as: _Iinimum working capital, current ratio, or quick ratio (to ensure ongoing liquidity) _Iinimum return on assets or return on equity (to give the lender an early warning and allow
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