Glossary Letter: C

Capital refers to the financial resources that borrowers or businesses use to fund operations, investments, or growth. It can include cash, assets, or other liquid resources that are essential for securing loans or financing.  A loan management software can help evaluate a borrower’s capital. This is crucial for determining their ability to repay loans and… Continue reading Capital

A Call Provision is a clause in a bond that allows the issuer to repay the principal amount before the maturity date. This feature is often included to provide the issuer with financial flexibility. If interest rates decline, the issuer can refinance the debt at a lower rate, reducing their interest expense. The call provision… Continue reading Call Provision

A covenant refers to a contractual promise made by a borrower within a loan agreement. These covenants establish specific financial or operational conditions that the borrower must maintain throughout the loan term. These conditions, which can be either affirmative or negative, are designed to protect the lender by ensuring the borrower’s financial health and stability.… Continue reading Covenant

Collateral is an asset that a borrower offers to a lender as security for a loan. It acts as a form of protection for the lender, ensuring that if the borrower defaults on the loan, the lender can seize the collateral and sell it to recoup the outstanding loan amount. Common types of collateral include… Continue reading Collateral

A contingency in lending refers to a condition or requirement that must be met for a loan to be approved, closed, or funded. These conditions serve as safeguards for both the borrower and the lender, ensuring that certain criteria are satisfied before the loan process can proceed to the next stage.  Common contingencies include appraisals,… Continue reading Contingency

The Combined Loan-To-Value (CLTV) ratio is a metric used in the lending industry during the underwriting process, particularly in the context of real estate financing. It is a measure of the total amount of debt outstanding on a property relative to its value.  The CLTV ratio considers not only the primary mortgage loan but also… Continue reading Combined Loan-To-Value Ratio (CLTV)

Capitalization refers to the accounting practice of adding a cost to the principal balance of the loan rather than expensing it immediately. This means the cost is spread out over the life of the loan and factored into future interest calculations. Capitalization can significantly impact the total cost of your loan. By increasing the principal… Continue reading Capitalization

Collateral tracking is the process of monitoring and managing assets pledged as security for a loan or credit. This process ensures that the collateral remains sufficient to cover the lender’s risk in the event of borrower default. It involves regularly assessing the value, condition, and ownership status of the collateral to confirm it aligns with… Continue reading Collateral Tracking