1. What services does a company expect from its bank?
2. What are some of the differences between a loan and an overdraft?
3. When offering a loan or an overdraft, a bank usually demands security. What can a customer offer as security?
Read these two letters from banks to their corporate customers.
Dear Mrs Phipps
Re: Retail Banking
On the attached you will find the Bank’s proposed Schedule of Charges which will take effect as from 1st January, and will be reviewed annually.
We very much regret that we are unable to continue offering ‘free banking’ to our customers. This recent change of policy is due to increasing costs, and we feel that if we are to continue to maintain the professional level of personal service that we have always provided to our customers, we must now obtain a contribution to our expenses.
You will note that our charges are below the average levied by other UK banks, as we wish to remain competitive in this market.
The charges will be debited to your account monthly in arrears.
The minimum balance requirement for those accounts which are interest bearing has been reduced from USD 100,000.00 to USD 50,000.00 or currency equivalent. This reduction in the minimum balance requirement will therefore compensate for some of the charges which will have to be paid by yourselves.
If you have any questions concerning the new charges, would you please telephone either myself or my colleague, James Samuel.
Wendy Bracewell, Account Manager
Re: Banking facilities
The Bank is pleased to offer John Best Ltd (The Company) banking facilities on the terms referred to below but otherwise subject to normal banking terms and conditions.
Withdrawals may be made under the following facilities provided that the total amount of withdrawals at any time shall not exceed the limit. Overdraft limit: £35,000
The Bank may at any time discontinue all or any of the facilities and/or may demand repayment of all sums owing. The facilities are due for review in twelve months' time.
Interest on the overdraft facility is to be charged at 2.25% per annum over the Bank's Base Rate as published from time to time.
An arrangement fee of £120 will be payable.
The repayment of all monies owed in respect of the facilities will be secured by: Business Premises at 44 Park Road, Bristol.
All costs and expenses, as mentioned in the General Terms and Conditions attached to this letter, shall be payable by The Company.
To accept this offer, please arrange for the enclosed copy of this letter to be signed and returned.
Graham Collins, Branch Manager
Understanding main points
1. Mark these statements T (true) or F (false) according to the information in Letter A. Find the part of the letter that gives the correct information.
a) The new charges will remain the same for 12 months.
b) The company didn't have to pay bank charges before.
c) The bank's policy has changed because the bank wants to be more competitive.
d) Other UK banks make lower charges.
e) The company will have to pay the charges in advance.
f) If the company's account balance is USD 55,000, they will be able to earn interest on this.
g) The company will be better off than before because of the extra interest they will earn.
2. Mark these statements T (true) or F (false) according to the information in Letter B. Find the part of the letter that gives the correct information.
a) According to the letter, the company can overdraw up to a maximum of £35,000.
b) The period for which the terms of this letter are valid is three years.
c) The bank has the right to stop the overdraft facility and ask for the money to be paid back before the end of this period.
d) Other than interest, there will be no charges to pay.
e) The overdraft facility will be secured by a property.
f) The contract which the company should sign will be sent at a later date.
A. Word search
1. Find a word or phrase from Letter A that has a similar meaning.
a) each year or every year (para 1) – a…
b) keep something at the same level (para 2) – m…
c) amount that partly meets costs but does not cover them completely (para 2) – c…
d) having the same value (para 5) – e…
2. Find a word or phrase from Letter B that has a similar meaning.
a) go above a specified maximum level (para 2)
b) by the year (para 4)
c) fixed amount that has to be paid for a service (para 5)
d) place where a company carries out its business (para 6)
B. Understanding expression
Choose the best explanation for each of these phrases from the text.
1. monthly in arrears (Letter A, para 4)
a) payable at the end of the month
b) payable at the beginning of the month
2. interest bearing accounts (Letter A, para 5)
a) accounts which are free of interest
b) accounts which earn interest
3. facilities are due for review (Letter B, para 3)
a) the money borrowed must be repaid
b) the bank is going to reconsider the contract
4. Bank's Base Rate (Letter B, para 4)
a) the key lending rate of banks in Britain
b) a rate fixed by the bank itself
C. Word study: contract language
This phrase is used to show which rules, regulations or laws have to be followed by the people signing the contract,
e.g. This guarantee is subject to the laws of the State of New York.
This means the same as if, but is very strong and is common in contracts and means if and only if.
Shall is often used instead of will in contracts. It is very strong and means that the person signing must do what the contract says.
Match the modal verbs (1-5) with their meanings (a-e). (Note: not all the answers will be used; one will be used twice)
2. shall not
4. may not
a) It is allowed under the contract.
b) It is not allowed under the contract.
c) It is an obligation.
d) It is not an obligation.
e) This shows what will be done in the future.
Over to you
1. Imagine you are Mrs Phipps. Write a letter in reply to Letter A, saying that your company is not happy about having to pay charges and you have decided to switch your account to another bank which does not make charges.
2. Imagine you are the Managing Director of John Best Ltd, a company which makes office furniture. Your company has just won a new contract worth £400,000, but in order to carry out the work you need to buy new equipment and recruit extra staff. Write a letter to the bank and ask if you can increase the overdraft facility to £50,000.