In secured lending, recurring revenue and contract receivables can be used as collateral.

• A. They can be pledged or assigned.
• B. They cannot be used as collateral.
• C. They must be held in a trust.
• D. They have no value.

Answer: (A)

Recurring revenue and contract receivables represent future cash inflows, so they’re useful as collateral in secured lending. A lender can obtain a security interest in these receivables by either pledging or assigning them.

Pledging means the borrower retains ownership but provides the lender a lien on the receivables as security. The borrower may still collect payments on behalf of the lender and remit proceeds, but the lender has priority if there’s a default. Assignment, on the other hand, transfers the right to receive payments directly to the lender, often with debtors instructed to pay the lender instead of the borrower.

In practice, lenders perfect this interest through standard methods (like filing a financing statement) and may require notices to customers or control arrangements to protect the collateral.

So, those receivables can indeed be pledged or assigned as collateral. They aren’t required to be held in a trust, and they do have value—if they didn’t, they wouldn’t serve as usable collateral.