If you were asked to loan money to a company that you feared might be getting into financial difficulties, which of these courses of action would provide you with the most protection from default on the loan?
A) rely on the principle of limited liability
B) require the accounts of the company to be audited
C) specify a particular accounting method to be used
D) require a mortgage over a specific asset of the company

Question

Quizplus · Accepted Answer

Requiring a mortgage over a specific asset of the company would provide the most protection from default on the loan, as the lender would have a legal claim on the asset in the event of default. The other options may provide some level of protection, but they do not offer the same level of security as a mortgage. Limited liability would protect the lender from being liable for the company's debts, but it would not ensure repayment of the loan. Auditing the company's accounts and specifying an accounting method may provide some assurance of the company's financial stability, but they do not offer any form of collateral or legal claim in the event of default.

If You Were Asked to Loan Money to a Company