Tag: Lending

Pro-Rata Tranche definition explanation

What is Pro-Rata Tranche?
A portion of a syndicated loan that is made up of a revolving credit facility and an amortizing term loan. The pro-rata tranche is syndicated by banks, as opposed to institutional tranches, which are primarily comprised of non-bank lending institutions. Both tranches may often be found within the same syndicated loan.

Pro-rata tranches are common within the leverage loan market, or in loans to companies with existing high debt loads. Read more for examples and further explanation including related video clips and also comments
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Loan Shark definition explanation

What is Loan Shark?
A person or entity that charges borrowers interest above an established legal rate. Depending on where a person lives, lenders typically cannot charge more than 60% interest per annum. A loan shark, then, would be someone who illegally charged interest over the state’s legal limit, which could range up to, or even over, 100%. Read more for examples and further explanation including related video clips and also comments
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Predatory Lending definition explanation

What is Predatory Lending?
Unscrupulous actions carried out by a lender to entice, induce, and/or assist a borrower in taking a mortgage that carries high fees, a high interest rate, strips the borrower of equity, or places the borrower in a lower credit rated loan to the benefit of the lender. As with most things of a dishonest nature, new and different predatory lending schemes frequently arise. Read more for examples and further explanation including related video clips and also comments
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Undercapitalization definition explanation

What is Undercapitalization?
When a company does not have sufficient capital to conduct normal business operations and pay creditors. This can occur when the company is not generating enough cash flow or is unable to access forms of financing such as debt or equity. If a company can’t generate capital over time, it increases its chance of going bankrupt as it loses the ability to service its debts. Undercapitalized companies also tend to choose high-cost sources of capital, such as short-term credit, over lower-cost forms such as equity or long-term debt. Read more for examples and further explanation including related video clips and also comments
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Flow Of Funds – FOF definition explanation

What is Flow Of Funds – FOF?
A set of accounts that is used to follow the flow of money within various sectors of an economy. Specifically, the account analyzes economic data on borrowing, lending and investment throughout sectors like households, businesses and farms. Read more for examples and further explanation including related video clips and also comments
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Yield Curve definition explanation

What is Yield Curve?
A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity dates. The most frequently reported yield curve compares the three-month, two-year, five-year and 30-year U.S. Treasury debt. This yield curve is used as a benchmark for other debt in the market, such as mortgage rates or bank lending rates. The curve is also used to predict changes in economic output and growth. Read more for examples and further explanation including related video clips and also comments
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Accrued Interest definition explanation

What is Accrued Interest?
1. A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, but not yet paid or received. Accrued interest occurs as a result of the difference in timing of cash flows and the measurement of these cash flows.

2. The interest that has accumulated on a bond since the last interest payment up to, but not including, the settlement date. Read more for examples and further explanation including related video clips and also comments
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Precision Score definition explanation

What is Precision Score?
A number used by the TransUnion Credit Bureau to quantify the credit worthiness of borrowers. Precision scores used to be called Empirica scores before TransUnion started using the NextGen scoring model. These scores will determine how risky it is for a lending institution to lend money to borrowers.

Don’t be fooled by the name though, there are many companies that use this score but call it something else. They include:
– Experian, who uses the term “”FICO Advanced Risk Score””.
– TransUnion, who uses the term “”Precision””.
– Equifax, who uses the term “”Pinnacle””. Read more for examples and further explanation including related video clips and also comments
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