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Sunday, August 3, 2008

Daily Observations - Collateral, Refinancing Debt

The rules for collateral have not changed, other than receivables and inventory are no longer included in the valuation of the collateral. The loan must still be fully secured at liquidation value.

Another requirement having to do with collateral requirements is life insurance. Life insurance is now required in an amount sufficient to repay the loans if the viability of the business is tied to one individual or individuals. The lender is allowed to factor in the amount of collateral available to repay the loan in the event of the death of the borrower into its determination of the appropriate amount of life insurance required.

On an aside re-financing of existing debt has been altered as well. This alteration is for the better. The previous requirement was that to refinance any outstanding debt. The aggregate amount of each individual debt must be improved by 20% before refinancing could be considered.

The new requirement is that the total amount of all the debt must be improved by 20% and therefore if some debt is less than 20%. It can now be refinance as long as the aggregate is a 20% saving or more. Visit Loanforbiz.com for more information on this exciting topic

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