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BrockPhx
Friend

Operating loans - loss payee

For those with operating loans; does it come with some sort of "commercial security agreement" describing various types of property (i.e. inventory, equipment, investments, ect)?

 

For equipment portion I believe it's fairly standard to include verbage about having adequate insurance coverage and the bank should be listed as a loss payee on the policy.

 

My question, does your bank enforce being listed as a loss payee on the policy or do they typically just want to see adequate coverage on your equipment?

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6 Replies
dennymal
Veteran Contributor

Re: Operating loans - loss payee

Most of the equipment I buy is through Johndeere credit or Agdirect. Local banks have not been competitive, Both of them require me to have insurance on the equipment. I'm the payee if there is a loss. Bottom line, they are more concerned about the insurance not who gets the payment in case of loss.

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kraft-t
Senior Advisor

Re: Operating loans - loss payee

For equipment loans it is usual for the lender to have aloss payee clause in the contract. It merely protects the lenders collatteral should something bad happen. Nothing to be excited about.

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buckfarmer
Senior Contributor

Re: Operating loans - loss payee

My operating loan is just secured by collateral. I think it's some machinery. Can't really remeber exactly what. Last year was the first year in a while I needed to use it.
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WCMO
Senior Advisor

Re: Operating loans - loss payee

For the lender, taking security interest in machinery without some adequate level of insurance coverage, including a loss payee clause, is really a small step above being  unsecured.  Most prudent lenders taking security interest in machinery would require adequate insurance with a loss payee clause.

 

Having adequate insurance, without a loss payee clause nor naming your lender on your policy, still protects the lender without some of the paperwork hassles that occur from time to time --  whenever you make changes to your insurance, or are late on a premium payment, the insurance provider typically notifies your lender.  However, the lender would still need to look to you for payment if something happened to their collateral.  Therefore, this type of situation essentially protects you, the borrower, from loss, and your lender would need to trust you, or sue you to get the money if you didn't pay up.

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Shaggy98
Senior Advisor

Re: Operating loans - loss payee

You lost me at operating loan.

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hardnox
Advisor

Re: Operating loans - loss payee

While it is mildly annoying (several standard covenants are) it is a reasonable  to protect the lender's interest.

 

The interesting thing to me is to hear that there is lending going on out there without it.

 

Probably a good indication of the deterioration of credit quality.

 

Wasn't sure about ag but word on the street is that deterioartion in commercial credit is shocking.

 

Probably not to a "foam the runway" degree, more "lock your door."

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