A tangible net worth credit agreement is a document that outlines the terms and conditions of a loan that is granted based on the borrower`s tangible net worth. This type of credit agreement is often used by businesses that have significant assets but may not have a high credit rating.

Tangible net worth is the value of a company`s assets that can be physically touched or quantified. In other words, it excludes intangible assets such as goodwill, patents, trademarks, and other non-physical assets. To calculate a company`s tangible net worth, you subtract its liabilities from its tangible assets.

When a company applies for a loan based on its tangible net worth, the lender will typically require the borrower to provide a detailed list of its tangible assets and liabilities. The lender will then use this information to determine the loan amount and interest rate.

One advantage of using tangible net worth as a basis for a credit agreement is that it provides lenders with a more accurate assessment of the borrower`s ability to repay the loan. This is because tangible assets are generally more liquid and easier to value than intangible assets.

Another advantage of using tangible net worth is that it allows borrowers with lower credit ratings to still be eligible for loans. This is because the lender is more focused on the borrower`s assets rather than its credit history.

However, it`s important to note that lenders will still consider other factors when assessing a borrower`s creditworthiness. These may include the borrower`s cash flow, industry trends, and overall market conditions.

In summary, a tangible net worth credit agreement is a type of loan that is granted based on the borrower`s tangible assets. This type of agreement can be beneficial for businesses with significant assets but may not have a high credit rating. However, it`s important for borrowers to carefully consider the terms and conditions of the loan and ensure that they can comfortably meet the repayment requirements.