Lenders prefer to lend to firms with high net worth because
A)such firms are usually willing to pay higher interest rates.
B)the owners of such firms have more to lose if the firm defaults on a loan.
C)the government requires most bank loans to be made to such firms.
D)such firms usually are unable to raise funds directly through financial markets.

Question

Quizplus · Accepted Answer

Lenders prefer to lend to firms with high net worth because the owners of such firms have more to lose if the firm defaults on a loan. This means that the owners will be more motivated to ensure that the loan is repaid, thus reducing the risk for the lender.

Lenders Prefer to Lend to Firms with High Net Worth