A ﬁrm has inadequate ____________ if it does not have suﬃcient assets to pledge in the case of default. As a result it will likely be rejected for credit.

Question

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The term "collateral" refers to assets that a borrower pledges to a lender as security for a loan. If a firm does not have adequate collateral, it may not be able to obtain credit because the lender would not have sufficient assurance that it would be able to recover its funds in the event of a default. Choices A, B, and C relate to other aspects of creditworthiness but are not specifically tied to the issue of collateral. Choice E is also not relevant to this question.

A ﬁRm Has Inadequate ____________ If It Does Not Have