Economics · Banking and Finance
A software development firm with no tangible fixed assets but a strong portfolio of recurring subscription revenue from international clients is seeking a term loan for the expansion of its data center and hiring specialized AI engineers. The firm has a high EBITDA margin of 40% and a very low debt-equity ratio, but it cannot provide land or building as collateral security. The promoters are offering a pledge of their personal investments in mutual funds and a corporate guarantee from a subsidiary company. The bank's internal policy generally requires a minimum collateral cover of 100% for term loans. How would the appraisal officer best justify this proposal for approval?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1By classifying the software code as a tangible asset and valuing it at the cost of development.
- 2By insisting that the promoters sell their mutual funds and use the cash as equity instead of taking a loan.
- 3By proposing the use of a cash flow-based lending model and seeking a guarantee under a government scheme for technology firms.✓
- 4By ignoring the collateral requirement since the EBITDA margin is high enough to cover all risks.
Correct answer
By proposing the use of a cash flow-based lending model and seeking a guarantee under a government scheme for technology firms.
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