Which term is used to describe a loan that is likely to be uncollectible due to default?

Which term is used to describe a loan that is likely to be uncollectible due to default?

• A. Current Ratio Calculation
• B. Non-Competition Agreement
• C. Non-Performing Loan
• D. Draw Request

Answer: (C)

A loan that is unlikely to be collected because the borrower has defaulted is described as a non-performing loan. This status means the loan’s cash flows are in jeopardy and collection is doubtful, so interest may stop accruing and the lender must assess impairment and set aside an allowance for loan losses. It signals elevated credit risk and often prompts closer monitoring or potential write-downs. The other terms don’t describe loan collectibility: a current ratio calculation is a liquidity measure for a company; a non-competition agreement is a contract restricting competition; a draw request is a request to take funds from a line of credit.

A loan that is unlikely to be collected because the borrower has defaulted is described as a non-performing loan. This status means the loan’s cash flows are in jeopardy and collection is doubtful, so interest may stop accruing and the lender must assess impairment and set aside an allowance for loan losses. It signals elevated credit risk and often prompts closer monitoring or potential write-downs. The other terms don’t describe loan collectibility: a current ratio calculation is a liquidity measure for a company; a non-competition agreement is a contract restricting competition; a draw request is a request to take funds from a line of credit.