When a Loan Is Secured by Receivables, the Firm Assigns

question 28

True/False

When a loan is secured by receivables, the firm assigns the receivables to the bank. If the firm fails to repay the loan, the bank can collect the receivables from the firm's customers and use the cash to pay off the debt. The risk of default on the receivables is now borne by the bank.

---

Definitions:

Punitive Damages

Punitive damages are monetary compensations awarded in lawsuits, over and above the actual damages, intended to punish the defendant for egregious misconduct and deter future similar acts.

Innocent Misrepresentation

A false statement made by someone who believes it to be true, leading another to enter into a contract or agreement under false pretenses without the intent to deceive.

Common Law Fraud

A form of fraud that involves misrepresentation, deceit, or concealment of a material fact leading to damage to another party, recognized under common law.

Materiality

The significance or importance of an event, fact, or piece of information in influencing a decision, particularly in the context of finance or law.