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Commercial Equipment Financing - Case Study Example
Finance & Accounting
Pages 6 (1506 words)
Author: Instructor: Date: Executive summary Commercial Equipment Financing (CEF) is a division under GE Capital Canada, which issues loans to trucking companies. Its loan recovery strategy is very tight, and only one percent of its portfolio has been lost to bad debts…
Problem Statement Commercial Equipment Financing (CEF) is issuing loans to trucking companies that operate in a very volatile industry, hence increasing the chances of bad debts. This calls for very careful and prudent credit policies, to avoid losses when clients become bankrupt. Problems/Sub-problems/Issues The following are the minimum requirements that had to be met before CEF would approve any loan request: i. Any company that has operated for less than three years does not qualify for loan ii. For any company to be considered for loan, it must be able to generate adequate cash flows to repay the monthly interest. iii. Any company with debt/equity ratio, which is greater than 4:1 does not qualify for loan iv. The company that is being awarded some loan must be ready to finance 10 percent of the asset’s cost on its own v. Other considerations include the general economic conditions, the character of the business owner, and any asset of the company that is pledged as collateral. Challenges experienced by CEF, which increases the risk of bad debts The status of the transportation industry in southern Ontario The industry operated profitably from 1985 to 1988, but a considerable recession that hit the economy in 1989 caused instability. ...
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