Principal Lending Manager (PLM) Practice Test

Testing a borrower's ability to service debt under adverse conditions is done by applying stressed cash-flow scenarios and re-evaluating the debt service coverage ratio. The lender models negative shocks to cash flows—like lower revenues, higher operating costs, vacancies, or macro downturns—and then checks if enough cash remains to meet debt obligations. This approach directly assesses whether the borrower can still service debt even when things don’t go as expected. Why this method fits: it simulates real-world downturns and measures resilience, revealing whether the loan would remain sustainable under stress. The other options don’t perform this kind of resilience check: increasing the loan size changes exposure but doesn’t test how cash flows behave under stress; changing loan currency introduces FX risk rather than evaluating cash-flow solvency under adverse conditions; extending payment holidays alters terms and isn’t a test of the borrower’s ability to pay under stressed cash flows.