Definition of secured loan or line of credit

secured loan or line of credit

A lump sum of funds (loan), or a revolving source of credit with a pre-established limit (line of credit), for which the customer must provide collateral.

Back-to-back loan

A loan in which two companies in separate countries borrow each other's currency for a
specific time period and repay the other's currency at an agreed upon maturity.

Bank line

line of credit granted by a bank to a customer.

Best-interests-of-creditors test

The requirement that a claim holder voting against a plan of reorganization
must receive at least as much as he would have if the debtor were liquidated.

Broker loan rate

Related: Call money rate.

Builder buydown loan

A mortgage loan on newly developed property that the builder subsidizes during the
early years of the development. The builder uses cash to buy down the mortgage rate to a lower level than the
prevailing market loan rate for some period of time. The typical buydown is 3% of the interest-rate amount
for the first year, 2% for the second year, and 1% for the third year (also referred to as a 3-2-1 buydown).

Bullet loan

A bank term loan that calls for no amortization.

Capital market line (CML)

The line defined by every combination of the risk-free asset and the market portfolio.

Cash flow time-line

line depicting the operating activities and cash flows for a firm over a particular period.

Characteristic line

The market model applied to a single security. The slope of the line is a security's beta.

Comparative credit analysis

A method of analysis in which a firm is compared to others that have a desired
target debt rating in order to infer an appropriate financial ratio target.

Consumer credit

credit granted by a firm to consumers for the purchase of goods or services. Also called
retail credit.

Credit

Money loaned.

Credit analysis

The process of analyzing information on companies and bond issues in order to estimate the
ability of the issuer to live up to its future contractual obligations. Related: default risk

Credit enhancement

Purchase of the financial guarantee of a large insurance company to raise funds.

Credit period

The length of time for which the customer is granted credit.

Credit risk

The risk that an issuer of debt securities or a borrower may default on his obligations, or that the
payment may not be made on a negotiable instrument. Related: Default risk

Credit scoring

A statistical technique wherein several financial characteristics are combined to form a single
score to represent a customer's creditworthiness.

Credit spread

Related:Quality spread

Crediting rate

The interest rate offered on an investment type insurance policy.

Creditor

Lender of money.

Dealer loan

Overnight, collateralized loan made to a dealer financing his position by borrowing from a
money market bank.

Demand line of credit

A bank line of credit that enables a customer to borrow on a daily or on-demand basis.

Equivalent loan

Given the after-tax stream associated with a lease, the maximum amount of conventional
debt that the same period-by-period after-tax debt service stream is capable of supporting.

Euro lines

lines of credit granted by banks (foreign or foreign branches of U.S. banks) for Eurocurrencies.

Eurocredits

Intermediate-term loans of Eurocurrencies made by banking syndicates to corporate and
government borrowers.

Evergreen credit

Revolving credit without maturity.

Federal credit agencies

Agencies of the federal government set up to supply credit to various classes of
institutions and individuals, e.g. S&Ls, small business firms, students, farmers, and exporters.

Federal Home Loan Banks

The institutions that regulate and lend to savings and loan associations. The
Federal Home loan Banks play a role analogous to that played by the Federal Reserve Banks vis-Ă -vis
member commercial banks.

Five Cs of credit

Five characteristics that are used to form a judgement about a customer's creditworthiness:
character, capacity, capital, collateral, and conditions.

Fixed-rate loan

A loan on which the rate paid by the borrower is fixed for the life of the loan.

Foreign tax credit

Home country credit against domestic income tax for foreign taxes paid on foreign
derived earnings.

Freddie Mac (Federal Home Loan Mortgage Corporation)

A Congressionally chartered corporation that
purchases residential mortgages in the secondary market from S&Ls, banks, and mortgage bankers and
securitizes these mortgages for sale into the capital markets.

Full faith-and-credit obligations

The security pledges for larger municipal bond issuers, such as states and
large cities which have diverse funding sources.

Intercompany loan

loan made by one unit of a corporation to another unit of the same corporation.

Inventory loan

A secured short-term loan to purchase inventory. The three basic forms are a blanket
inventory lien, a trust receipt, and field warehousing financing.

Investment product line (IPML)

The line of required returns for investment projects as a function of beta
(nondiversifiable risk).

Investment tax credit

Proportion of new capital investment that can be used to reduce a company's tax bill
(abolished in 1986).

Jumbo loan

loans of $1 billion or more. Or, loans that exceed the statutory size limit eligible for purchase or
securitization by the federal agencies.

Letter of credit (L/C)

A form of guarantee of payment issued by a bank used to guarantee the payment of
interest and repayment of principal on bond issues.

Line of credit

An informal arrangement between a bank and a customer establishing a maximum loan
balance that the bank will permit the borrower to maintain.

Linear programming

Technique for finding the maximum value of some equation subject to stated linear constraints.

Linear regression

A statistical technique for fitting a straight line to a set of data points.

Loan amortization schedule

The schedule for repaying the interest and principal on a loan.

Loan syndication

Group of banks sharing a loan. See: syndicate.

Loan value

The amount a policyholder may borrow against a whole life insurance policy at the interest rate
specified in the policy.

Log-linear least-squares method

A statistical technique for fitting a curve to a set of data points. One of the
variables is transformed by taking its logarithm, and then a straight line is fitted to the transformed set of data
points.

Line of credit

An informal arrangement between a bank and a customer establishing a maximum loan
balance that the bank will permit the borrower to maintain.

Mortgage pipeline

The period from the taking of applications from prospective mortgage borrowers to the
marketing of the loans.

Mortgage-pipeline risk

The risk associated with taking applications from prospective mortgage borrowers
who may opt to decline to accept a quoted mortgage rate within a certain grace period.

Multicurrency loans

Give the borrower the possibility of drawing a loan in different currencies.

Multifamily loans

loans usually represented by conventional mortgages on multi-family rental apartments.

Old-line factoring

Factoring arrangement that provides collection, insurance, and finance for accounts receivable.

Parallel loan

A process whereby two companies in different countries borrow each other's currency for a
specific period of time, and repay the other's currency at an agreed maturity for the purpose of reducing
foreign exchange risk. Also referred to as back-to-back loans.

Project loan certificate (PLC)

A primary program of Ginnie Mae for securitizing FHA-insured and coinsured
multifamily, hospital, and nursing home loans.

Project loan securities

Securities backed by a variety of FHA-insured loan types - primarily multi-family
apartment buildings, hospitals, and nursing homes.

Project loans

Usually FHA-insured and HUD-guaranteed mortgages on multiple-family housing complexes,
nursing homes, hospitals, and other development types.

Retail credit

credit granted by a firm to consumers for the purchase of goods or services.
See: consumer credit.

Revolving credit agreement

A legal commitment wherein a bank promises to lend a customer up to a
specified maximum amount during a specified period.

Revolving line of credit

A bank line of credit on which the customer pays a commitment fee and can take
down and repay funds according to his needs. Normally the line involves a firm commitment from the bank
for a period of several years.

Savings and Loan association

National- or state-chartered institution that accepts savings deposits and
invests the bulk of the funds thus received in mortgages.

Secured debt

Debt that, in the event of default, has first claim on specified assets.

Security characteristic line

A plot of the excess return on a security over the risk-free rate as a function of
the excess return on the market.

Security market line

line representing the relationship between expected return and market risk.
Security market plane A plane that shows the equilibrium between expected return and the beta coefficient
of more than one factor.
Security selection
See: security selection decision.

Self-liquidating loan

loan to finance current assets, The sale of the current assets provides the cash to repay
the loan.

Simple linear regression

A regression analysis between only two variables, one dependent and the other explanatory.

Simple linear trend model

An extrapolative statistical model that asserts that earnings have a base level and
grow at a constant amount each period.

Straight line depreciation

An equal dollar amount of depreciation in each accounting period.

Swingline facility

Bank borrowing facility to provide finance while the firm replaces U.S. commercial paper
with eurocommercial paper.

Term loan

A bank loan, typically with a floating interest rate, for a specified amount that matures in between
one and ten years and requires a specified repayment schedule.

Trade credit

credit granted by a firm to another firm for the purchase of goods or services.

Transaction loan

A loan extended by a bank for a specific purpose. In contrast, lines of credit and revolving
credit agreements involve loans that can be used for various purposes.

Unsecured debt

Debt that does not identify specific assets that can be taken over by the debtholder in case of default.

Variable rate loan

loan made at an interest rate that fluctuates based on a base interest rate such as the
Prime Rate or LIBOR.

STRAIGHT-LINE DEPRECIATION

A depreciation method that depreciates an asset the same amount for each year of its estimated
life.

Credit

Buying or selling goods or services now with the intention of payment following at some time in
the future (as opposed to buying or selling goods or services for cash).

Creditors

Purchases of goods or services from suppliers on credit to whom the debt is not yet paid. Or a
term used in the Balance Sheet to denote current liabilities.

Line item

Generic types of assets, liabilities, income or expense that are common to all businesses and
used as the basis of financial reporting, e.g. rent, salaries, advertising etc.

Credit

One side of a journal entry, usually depicted as the right side.

Loans payable

Amounts that have been loaned to the company and that it still owes.

Straight-line

A method of depreciation.

bottom line

A commonly used term that refers to the net income (profit)
reported by a business, which is the last, or bottom line, in its income
statement. As you undoubtedly know, the term has taken on a much
broader meaning in everyday use, referring to the ultimate or most important
effect or result of something. Not many accounting-based terms have
found their way into everyday language, but this is one that has.

net income (also called the bottom line, earnings, net earnings, and net

operating earnings)
This key figure equals sales revenue for a period
less all expenses for the period; also, any extraordinary gains and losses
for the period are included in this final profit figure. Everything is taken
into account to arrive at net income, which is popularly called the bottom
line. Net income is clearly the single most important number in business
financial reports.

straight-line depreciation

This depreciation method allocates a uniform
amount of the cost of long-lived operating assets (fixed assets) to each
year of use. It is the basic alternative to the accelerated depreciation
method. When using the straight-line method, a business may estimate a
longer life for a fixed asset than when using the accelerated method
(though not necessarily in every case). Both methods are allowed for
income tax and under generally accepted accounting principles (GAAP).

Security Market Line

A graph illustrating the equilibrium relationship between the
expected rate of return on securities and their risk as measured by
the beta coefficient

line employee

an employee who is directly responsible for
achieving the organization’s goals and objectives

linear programming

a method of mathematical programming used to solve a problem that involves an objective function and multiple limiting factors or constraints long-term variable cost a cost that was traditionally viewed as a fixed cost

Management Accounting Guidelines (MAGs)

pronouncements of the Society of Management Accountants of
Canada that advocate appropriate practices for specific
management accounting situations

product line margin

see segment margin

red-line system

an inventory ordering system in which a red
line is painted on the inventory container at a point deemed
to be the reorder point

regression line

any line that goes through the means (or averages) of the set of observations for an independent variable and its dependent variables; mathematically, there is a line of “best fit,” which is the least squares regression line

timeline

representation of the amounts and timing of all
cash inflows and outflows; it is used in analyzing cash flow
from a capital project

credit analysis

Procedure to determine the likelihood a customer will pay its bills.

credit policy

Standards set to determine the amount and nature of credit to extend to customers.

line of credit

Agreement by a bank that a company may borrow at any time up to an established limit.

secured debt

Debt that has first claim on specified collateral in the event of default.

security market line

Relationship between expected return and beta.

straight-line depreciation

Constant depreciation for each year of the asset’s accounting life.

Credit Crunch

A decline in the ability or willingness of banks to lend.

Credit Rationing

Restriction of loans by lenders so that not all borrowers willing to pay the current interest rate are able to obtain loans.

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