After graduating,a student set up a business as a systems analyst.His monthly billings are healthy,about $10 000 a month.He rents his office,hardware,and furniture and owns few assets.He rents his apartment,has no car,and spends most of his income on concerts.If he approaches you,a bank manager,to borrow $50,000 for the purpose of increasing his working capital,which of the following securities would you most likely request?
A) conditional sale contract
B) chattel mortgage
C) security under sections 426 and 427 of the Bank Act
D) floating charge debenture
E) assignment of accounts receivable

Question

Quizplus · Accepted Answer

Given that the student has few assets, renting his office and apartment, and spends most of his income on concerts, it is unlikely that he would be able to provide a conditional sale contract or chattel mortgage as a security. The Bank Act's sections 426 and 427 relate to the collateral for specific loans, which may not be applicable in this case. A floating charge debenture would be more appropriate for large corporates, whereas the student is an individual. An assignment of accounts receivable is a useful security for a small business with large amounts of outstanding invoices, and in this case, it is likely that the student relies on his monthly billings as his main source of income. Therefore, an assignment of accounts receivable would be the best option for the bank manager to consider.

After Graduating,a Student Set Up a Business as a Systems