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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