Understanding Business Credit Terms And Conditions is crucial for success in the TOEIC Reading section. Let’s dive into a practice test focusing on this important topic. By mastering these concepts, you’ll be better prepared to tackle similar questions in the actual exam. Remember, steps to apply for a bank loan often involve comprehending complex credit terms, so this practice will be valuable beyond just test preparation.
Part 1: Incomplete Sentences
In this section, you’ll find 30 incomplete sentences. Choose the word or phrase that best completes each sentence.
-
The company’s credit limit was __ to reflect its improved financial status.
A) reduced
B) eliminated
C) increased
D) stabilized -
The annual percentage rate (APR) is a key factor in __ the true cost of borrowing.
A) determining
B) declining
C) deducting
D) deferring -
Many businesses prefer to use a __ credit line for short-term financing needs.
A) revolving
B) stationary
C) fixed
D) permanent -
The lender requires a personal __ from the business owner for the loan.
A) signature
B) guarantee
C) promise
D) oath -
The company must maintain a minimum __ ratio to comply with the loan terms.
A) debt-to-equity
B) profit-to-loss
C) asset-to-liability
D) income-to-expense -
Late payments may result in a __ of the preferential interest rate.
A) forfeiture
B) forfeit
C) forfeiting
D) forfeited -
The collateral required for the loan must be __ to cover the full amount borrowed.
A) sufficient
B) deficient
C) efficient
D) proficient -
The credit agreement includes a __ clause allowing for early repayment without penalty.
A) prepayment
B) pre-approval
C) preemptive
D) preliminary -
The company’s creditworthiness is __ assessed through its financial statements and credit history.
A) thoroughly
B) superficially
C) partially
D) minimally -
A __ credit check is performed annually to ensure ongoing compliance with loan terms.
A) cursory
B) comprehensive
C) casual
D) conditional -
The interest rate is subject to __ based on changes in the prime rate.
A) fluctuation
B) fixation
C) finalization
D) formation -
The borrower must provide __ financial statements to the lender on a quarterly basis.
A) audited
B) abbreviated
C) ambiguous
D) approximate -
Failure to meet the __ outlined in the credit agreement may trigger a default.
A) covenants
B) conventions
C) convictions
D) conversions -
The lender reserves the right to __ the loan if certain financial benchmarks are not met.
A) call
B) cancel
C) continue
D) convey -
A __ fee is charged for processing the loan application.
A) nominal
B) substantial
C) negligible
D) exorbitant -
The credit facility includes a __ feature allowing for additional borrowing up to a specified limit.
A) accordion
B) harmonica
C) piano
D) trumpet -
The company must maintain adequate __ coverage to protect against potential losses.
A) insurance
B) assurance
C) reassurance
D) endurance -
A __ of default allows the lender to demand immediate repayment of the loan.
A) waiver
B) notice
C) warning
D) reminder -
The credit terms include a __ period during which no principal payments are required.
A) grace
B) gratitude
C) gravity
D) gradual -
The company’s cash flow projections are used to assess its ability to __ the loan.
A) service
B) sever
C) severe
D) sever -
A __ lien gives the lender first claim on the company’s assets in case of default.
A) primary
B) secondary
C) tertiary
D) quaternary -
The loan agreement specifies the __ of interest calculation and payment.
A) frequency
B) intensity
C) magnitude
D) amplitude -
The company must adhere to strict __ requirements to maintain its line of credit.
A) reporting
B) deporting
C) retorting
D) distorting -
A __ guarantee from the parent company strengthens the subsidiary’s credit application.
A) corporate
B) cooperative
C) corrective
D) correlative -
The lender may require a __ audit to verify the accuracy of financial information provided.
A) spot
B) spat
C) spout
D) sprout -
The credit facility includes a __ option allowing for conversion to a fixed-rate loan.
A) swap
B) sweep
C) swipe
D) swoop -
A __ in the company’s credit rating may result in less favorable loan terms.
A) downgrade
B) downpour
C) downturn
D) downplay -
The loan agreement includes a __ clause protecting the lender against unforeseen economic events.
A) force majeure
B) forced march
C) forceful measure
D) formal mandate -
The company must maintain a minimum __ balance in its operating account as per the credit terms.
A) compensating
B) competing
C) complying
D) comparing -
A __ of the loan terms may be granted under exceptional circumstances.
A) waiver
B) waver
C) weaver
D) waver
Understanding Business Credit Terms and Conditions
Part 2: Text Completion
In this section, you’ll find 4 passages with 4 blanks each. Choose the best word or phrase to fill each blank.
Passage 1
Credit terms are a crucial aspect of business financing, often determining the (1)__ between success and failure for many companies. When negotiating credit terms, businesses must carefully consider the (2)__ period, which is the time allowed for payment without incurring additional charges. Additionally, the interest rate and any potential (3)__ for late payments should be thoroughly examined. It’s also important to understand the lender’s policies regarding (4)__, as this can significantly impact a company’s ability to manage its cash flow effectively.
-
A) difference
B) indifference
C) deference
D) preference -
A) grace
B) space
C) place
D) race -
A) penalties
B) bonuses
C) incentives
D) rewards -
A) prepayment
B) postpayment
C) nonpayment
D) underpayment
Passage 2
Understanding the fine print in credit agreements is essential for businesses seeking financing. One key element to consider is the (5)__, which outlines specific financial ratios or benchmarks that the borrower must maintain. Failure to meet these requirements can result in a (6)__ of the loan terms. Another important factor is the (7)__, which may allow the lender to demand full repayment under certain circumstances. Businesses should also be aware of any (8)__ that may restrict their ability to take on additional debt or make significant changes to their operations.
-
A) covenants
B) contracts
C) conditions
D) clauses -
A) breach
B) break
C) rupture
D) fracture -
A) acceleration clause
B) deceleration clause
C) stagnation clause
D) fluctuation clause -
A) limitations
B) liberations
C) litigations
D) liquidations
Passage 3
When applying for business credit, companies must provide comprehensive financial information to demonstrate their (9)__. This typically includes audited financial statements, tax returns, and detailed cash flow projections. Lenders will carefully analyze this data to assess the company’s ability to (10)__ the proposed debt. In some cases, additional (11)__ may be required to secure the loan, such as personal guarantees from business owners or specific assets pledged as collateral. It’s crucial for businesses to fully understand the implications of these requirements before (12)__ to the credit terms.
-
A) creditworthiness
B) credit score
C) credit history
D) credit limit -
A) service
B) sever
C) sever
D) survey -
A) security
B) insecurity
C) obscurity
D) maturity -
A) agreeing
B) disagreeing
C) negotiating
D) delegating
Business Loan Application Process
Passage 4
The structure of a credit facility can significantly impact a company’s financial flexibility. Many businesses opt for a (13)__ credit line, which allows them to borrow and repay funds as needed up to a certain limit. This type of arrangement often includes an (14)__ feature, enabling the borrower to increase the credit limit under predetermined conditions. Some credit facilities also offer a (15)__ option, allowing the borrower to switch between fixed and variable interest rates. It’s important for businesses to carefully consider their long-term financial strategy when selecting the most appropriate (16)__ for their credit needs.
-
A) revolving
B) evolving
C) resolving
D) dissolving -
A) accordion
B) concertina
C) harmonica
D) piano -
A) swap
B) sweep
C) swipe
D) swoop -
A) structure
B) stricture
C) stature
D) strature
Understanding business credit terms and conditions is essential for navigating the complex world of corporate finance. By mastering these concepts, you’ll be better equipped to handle related questions in the TOEIC Reading section and in real-world business scenarios. Remember, understanding payment structures in contracts is closely related to credit terms and can further enhance your financial literacy.
Answer Key
Part 1: Incomplete Sentences
- C) increased
- A) determining
- A) revolving
- B) guarantee
- A) debt-to-equity
- A) forfeiture
- A) sufficient
- A) prepayment
- A) thoroughly
- B) comprehensive
- A) fluctuation
- A) audited
- A) covenants
- A) call
- A) nominal
- A) accordion
- A) insurance
- B) notice
- A) grace
- A) service
- A) primary
- A) frequency
- A) reporting
- A) corporate
- A) spot
- A) swap
- A) downgrade
- A) force majeure
- A) compensating
- A) waiver
Part 2: Text Completion
Passage 1:
- A) difference
- A) grace
- A) penalties
- A) prepayment
Passage 2:
5. A) covenants
6. A) breach
7. A) acceleration clause
8. A) limitations
Passage 3:
9. A) creditworthiness
10. A) service
11. A) security
12. A) agreeing
Passage 4:
13. A) revolving
14. A) accordion
15. A) swap
16. A) structure
By practicing with these questions and reviewing the answers, you’ll improve your understanding of business credit terms and conditions. This knowledge will not only help you in the TOEIC Reading section but also in real-world business situations. Don’t forget to explore understanding product warranty information as well, as it often relates to credit terms in business transactions.
