Is a lender allowed to propose a guaranteed operating loan of $125,000 to refinance operating debt with a lien on equipment valued at $220,000?

A lender is indeed allowed to propose a guaranteed operating loan of $125,000 to refinance operating debt while having a lien on equipment valued at $220,000. This situation is permissible because the value of the collateral (the equipment) exceeds the amount of the proposed loan, indicating that the lender has sufficient security for the loan.

In the context of operating loans, the key criteria usually involve ensuring that the proposed loan amount is justified by the value of the collateral being used to secure it. Since the equipment has a valuation significantly higher than the loan amount, it aligns with the principles of prudent lending practices, which often require that collateral sufficiently covers the debt.

The focus on the valuation of the equipment being $220,000 serves to mitigate risk for the lender because it means that, even if the borrower defaults, the lender has an asset of substantial value to recover part of the owed amount. Thus, it is within the regulations and practices governing guaranteed operating loans to allow such a refinancing under these circumstances.