London Institute of Banking & Finance (LIBF) Qualifications Certificate in Business Banking and Conduct of Business Flashcards

24 sample cards from the Certificate in Business Banking and Conduct of Business deck

Sampled from the end of the deck, so these are different cards from the ones shown on the syllabus page.

1. What is the difference between secured and unsecured business lending?

   Secured lending is backed by a charge over specific assets (e.g. property, debentures) that the lender can realise on default, reducing risk and often the rate. Unsecured lending has no such asset backing, so it carries higher risk and typically higher pricing and lower limits.

2. What is a debenture in the context of business lending security?

   A debenture is a document creating a charge (fixed and/or floating) over a company's assets to secure borrowing. A fixed charge attaches to specific assets; a floating charge covers a class of changing assets (e.g. stock) and 'crystallises' into a fixed charge on default.

3. What is the CAMPARI model used for in business credit assessment?

   CAMPARI is a lending mnemonic for appraising a credit proposition: Character, Ability, Margin, Purpose, Amount, Repayment, and Insurance (security). It ensures the lender considers the borrower's integrity, competence, pricing, reason, sum needed, repayment source and fallback security.

4. In credit assessment, what is meant by the 'primary' versus 'secondary' source of repayment?

   The primary source of repayment is the cash flow generated by the business's normal trading. The secondary source is the realisation of security or guarantees, used only if the primary source fails. Lending should rest on a viable primary source, not on security.

5. What are the '5 Cs of credit' used to assess a business borrower?

   Character, Capacity, Capital, Collateral, and Conditions — covering the borrower's reliability, ability to repay from cash flow, own financial stake, security available, and the wider economic/sector conditions affecting the loan.

6. Why does a lender review a business's management accounts and bank statements as part of credit assessment?

   They provide up-to-date evidence of trading performance, cash flow patterns, account conduct (e.g. returned items, excesses), and seasonality that statutory accounts (which can be months out of date) do not reveal, improving the accuracy of affordability and risk judgements.

7. What is a personal guarantee, and why is it often required for SME lending?

   A personal guarantee is a promise by a director/owner to repay the company's debt from personal assets if the company defaults. It is sought because limited liability otherwise shields owners, and it aligns owner commitment with the loan while giving the bank recourse.

8. What is the main purpose of UK government-backed lending schemes for businesses?

   They encourage lenders to provide finance to viable businesses that lack sufficient security or track record, by the government providing a partial guarantee on the lender's exposure, thereby improving access to finance and reducing the lender's loss given default.

9. What was the Coronavirus Business Interruption Loan Scheme (CBILS), and what guarantee did the government provide?

   CBILS supported UK SMEs affected by COVID-19 with loans up to £5 million, with the government providing lenders an 80% guarantee on each facility and covering the first 12 months of interest and fees (Business Interruption Payment).

10. What did the Bounce Back Loan Scheme (BBLS) offer to small businesses?

    BBLS offered loans from £2,000 up to 25% of turnover (capped at £50,000) with a 100% government guarantee, no fees or interest for the first 12 months, and a fixed interest rate of 2.5% thereafter.

11. What is the Recovery Loan Scheme / current Growth Guarantee Scheme designed to do?

    It is a successor government-backed scheme that supports access to finance for UK businesses as they grow and invest, providing lenders a government guarantee (typically 70%) on facilities to encourage continued lending after the pandemic emergency schemes ended.

12. When a business loan shows early signs of distress, what is the lender's typical first action?

    Identify and review the warning signs early (e.g. exceeding limits, missed payments, falling turnover), then engage with the customer to understand the cause and agree a plan — often moving the relationship to a specialist business support/recovery team rather than immediately enforcing.

13. List common early warning signs that a business customer is heading into financial difficulty.

    Persistent excesses over the overdraft limit, returned/bounced payments, deteriorating account turnover, late filing of accounts, stretching creditors, hardcore (permanently used) overdraft, loss of key customers/contracts, and requests for increased facilities to cover losses.

14. What is 'forbearance' in the context of managing problem business debt?

    Forbearance is the lender granting temporary concessions to a struggling but viable borrower — such as payment holidays, reduced payments, term extension, or capitalising arrears — to help them recover, rather than enforcing default, while treating the customer fairly.

15. Distinguish a 'going concern' from a 'gone concern' approach when handling distressed business debt.

    A going-concern approach seeks to keep the business trading and recover the debt over time (restructure, forbearance). A gone-concern approach assumes the business will cease, focusing on realising assets/security to recover as much of the debt as possible (e.g. via insolvency).

16. Name the main UK corporate insolvency procedures a lender may encounter.

    Administration (rescue/orderly realisation under an administrator), Company Voluntary Arrangement (CVA, a binding deal with creditors), receivership/administrative receivership, and liquidation (winding up — voluntary or compulsory).

17. What is the difference between a regulated and an unregulated business activity for banking purposes?

    Regulated activities fall under FCA/PRA rules and consumer protections (e.g. some lending to sole traders/small partnerships under the Consumer Credit Act, regulated mortgages). Unregulated activities (most lending to limited companies and larger businesses) fall outside that statutory consumer-credit protection, governed mainly by contract and voluntary codes.

18. Under the Consumer Credit Act, which business borrowers can receive regulated-style protection?

    Sole traders, small partnerships (of up to three partners) and unincorporated bodies borrowing below the relevant threshold are treated similarly to consumers and may benefit from CCA protections; limited companies are excluded from CCA regulation regardless of amount.

19. What does 'Treating Customers Fairly' (TCF) require when dealing with business customers?

    TCF requires firms to embed fair treatment into culture and to deliver outcomes such as suitable products, clear and not misleading information, advice suited to circumstances, products performing as expected, and no unreasonable barriers to switching, complaining or exiting.

20. How does the FCA Consumer Duty relate to business (commercial) customers?

    The Consumer Duty's higher standard of consumer protection chiefly applies to retail customers, but its principle of acting to deliver good outcomes and avoid foreseeable harm informs good practice; many smaller business customers are protected via the voluntary Standards of Lending Practice rather than the Duty itself.

21. What are the main categories of financial crime relevant to commercial banking?

    Money laundering, terrorist financing, fraud (including invoice and authorised push payment fraud), bribery and corruption, sanctions breaches, tax evasion (and failure to prevent its facilitation), and market abuse.

22. What are the three stages of money laundering?

    Placement (introducing criminal cash into the financial system), layering (moving funds through transactions to disguise their origin), and integration (returning the laundered funds to the criminal as apparently legitimate wealth).

23. What is Customer Due Diligence (CDD) and when must Enhanced Due Diligence (EDD) be applied to a business customer?

    CDD involves identifying and verifying the customer, its beneficial owners (those holding more than 25%) and the nature/purpose of the relationship. EDD applies in higher-risk situations — e.g. a Politically Exposed Person, high-risk third country, or unusual/complex transactions — requiring extra checks and senior approval.

24. What is the Standards of Lending Practice for business customers, and who owns it?

    It is a voluntary set of standards and good-practice expectations, overseen by the Lending Standards Board (LSB), setting out how registered firms should treat business customers (broadly those with turnover up to £25 million) fairly across the product life cycle — from product information and credit assessment to monitoring and handling financial difficulty.

What this deck covers

Certificate in Business Banking and Conduct of Business flashcards FAQ