In this chapter, we continue our discussion of lending, focusing on major types of loans and issues that typically arise from the private transactions between borrowers and lenders, with reference to the NCCPA whenever relevant. Lending often goes hand in hand with some sort of security. Such security serves as legal protection in case of a default. Depending on the nature of the loan, security can take different forms: lenders may take security over a borrower’s property, whether real (eg a house) or personal (eg vehicles). Taking security over the real property interests of a borrower enables the lender to exercise certain rights against the property in the event of default. The most usual form of security is a mortgage. Alternatively, guarantees are common in Australia’s financing transactions. To be sure, lending is a complicated process; creating and registering security interests for financing can be equally, if not more, problematic in practice. The issues discussed herein are, therefore, not exhaustive.

In this chapter, we discuss the ways that credit risk arises, and how it can be modelled and mitigated. First, we consider the various types of contractual forms for loans and other obligations. We then discuss credit derivatives, which are contracts with payoffs that are contingent on credit events. We consider credit risk models based on the three fundamental components: probability of default, proportionate loss given default, and exposure at default. We consider models of default for individual firms, including the role of credit rating agencies, structural models, which are based on the underlying processes causing default, and reduced form models which are more based on the empirical information, with less emphasis on the underlying story. This is followed by a description of portfolio credit risk models, where the joint credit risk of multiple entities is the modelling objective.

Economic growth in Indian Country has improved over the past two decades, yet entrepreneurs and businesses on most reservations still find it difficult to access credit and capital investments. As sovereign nations, tribes can support and encourage the flow of credit into their communities by creating and strengthening their secured transaction systems (STS). These commercial laws are essential to protecting the interests and rights of businesses that extend credit, such as banks.

A strong STS establishes a set of rules for secured transactions that is reasonably similar to other jurisdictions, a reliable and transparent lien filing system, and politically independent contract enforcement mechanisms. This article explores the history and components of STS across the United States and Indian Country. It also discusses the Model Tribal Secured Transactions Act, and provides insights for tribal community leaders who are considering adopting or strengthening their STS.