Collateral Coverage Ratio

How is it calculated?

Collateral Coverage Ratio = (Collateral Value x Advance Rate) / Loan Amount

 

Goal of the Ratio

The goal of this ratio is to gauge the strength of the collateral position of a particular loan by showing how many times over you can repay the loan with the discounted collateral value.  The Collateral Coverage Ratio is superior to Loan to Value in situations where the proposed collateral for a loan is a mixture of different collateral types that require different advance rates.  

 

When is it used?

All lending situations.

 

Rules of Thumb

Higher is Better - Please note all ratios should be viewed in relation to industry norms to determine overall adequacy.

 

Other Relevant Terms

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Greetings! I'm Clay Sharkey, and there is nothing I like more than assisting others in achieving their goals. I firmly believe that by enhancing a banker's understanding of their customer's' business, they can provide superior service. This superior service, in turn, leads to stronger relationships for the bank, improved performance for the businesses, and better experiences for our communities.  Win-win-win.