Which of the following is true about accounts receivable loans?Multiple choice question.Accounts receivable act as a good basis for a loan when the customer is well known and creditworthy.Banks providing such loans usually finance 100 percent of the value of a venture's accounts receivable.Entrepreneurs with a low credit value are more likely than entrepreneurs with a high credit value to be eligible for such loans.Strong creditworthy customers are restricted from taking accounts receivable loans.
Question
Which of the following is true about accounts receivable loans?Multiple choice question.Accounts receivable act as a good basis for a loan when the customer is well known and creditworthy.Banks providing such loans usually finance 100 percent of the value of a venture's accounts receivable.Entrepreneurs with a low credit value are more likely than entrepreneurs with a high credit value to be eligible for such loans.Strong creditworthy customers are restricted from taking accounts receivable loans.
Solution
The correct answer is: "Accounts receivable act as a good basis for a loan when the customer is well known and creditworthy."
Explanation: Accounts receivable loans are a type of asset-financing arrangement where a company uses its receivables — outstanding invoices or money owed by customers — as collateral in a financing agreement. The company receives an amount that is equal to a reduced value of the receivables pledged. The age of the receivables has a large effect on the amount a company will receive. The older the receivables, the less the company can expect. Therefore, it is more likely for a well-known and creditworthy customer to be eligible for such loans.
Banks usually do not finance 100 percent of the value of a venture's accounts receivable because of the risk involved.
Entrepreneurs with a low credit value are less likely to be eligible for such loans because they represent a higher risk for the lender.
Strong creditworthy customers are not restricted from taking accounts receivable loans. In fact, they are more likely to get approved for such loans.
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