One reason lenders may require a large net worth before making a loan is because:

Question

Quizplus · Accepted Answer

Requiring a large net worth can help mitigate the problem of moral hazard, where the borrower takes excessive risks because they do not bear the full cost of those risks. If the borrower has a substantial net worth invested in the business, they have more to lose if the business fails, making it less likely that they will take on excessive risk. This gives the lender more confidence that the borrower will use the loan wisely and pay it back in full. The other options (A, B, and D) do not provide a valid reason for why a large net worth might be required for a loan.

One Reason Lenders May Require a Large Net Worth Before