Question

If you were a loan officer evaluating a small business credit application for a loan and you wanted to ensure that the applicant had more than sufficient cash flow to pay off its existing debt, the applicant's cash-flow-to-debt ratio would have to be greater than:_______

a. the TIE ratio.
b. peer average ratio.
c. the interest rate on the debt.
d. zero.
e. one.

Answer 1

c. the interest rate on the debt.

Step-by-step explanation:

The rate of interest on the debt is the amount i.e. payable to the firm on the regular basis. Also the firm have the more balance so that it ensures that they are free fro any default risk

Therefore according to the given situation, it is mentioned that the applicant had more than the enough cash flow so that he pay off the existing debt

Therefore the cash flow to debt ratio would be higher than the interest rate on the debt

hence, the option c is correct