Application for Credit

Our discount committee is still discussing your

application for credit. I wonder if you'd mind gi-

ving us some more information about certain

items shown on your balance sheet.

Not at all.

Is the mortgage on your fixed assets being amor-

tized?

Yes. We're making semi-annual payments on this

obligation.

Your balance sheet show some indebtedness. Are

any of your assets pledged as security?

No. That's just an open note.

Would your company be willing to pledge part

of its current assets as collateral security to our

Joan?

We wouldn't object to that. Part of this money will l>e used to retire present debts and part to expand our operations. Then we can immedi-

ately begin to liquidate this new liability.

1 think we'd better prefer that arrangement.

B.

Part II. Granting the Loan on an Open Note

Builder: 1 received your notice that my note is due. 1 can pay it off now, but there is a piece of land right next to my property that I'd like to buy.

Banker: 1 don't remember your situation exactly. Are your present holdings free of encumbrance?

Bu.: My real estate is clear. But there's a chattel mort­gage on my construction equipment.

37

it a

Has this land you want to buy been appraised?

Yes. It belongs to an estate and was appraised by|
order of the court. They estimated its value all
$20,000. *1

Can it be bought for that figure!

I think so. I'd like to make them that offer.

Would you consider giving us a trust deed lo se­cure your present note plus the additional funds

you'll need?

I might. But I'd thought that my net worth is high
enough that I could borrow the amount on my open
note. j

Well, in that case, would your wife agree to bej
a co-signer? \

I'm sure she would, because title to the properly! will be in both our names.

Well, it seems lo me that you have enough equity in your property for us lo make Ihe loan on an орел nole.

Questions on the dialogue: i

Parti. \

\

1. What is the customer applying for?

2.Has Ihe banker decided whelher lo granl the credit yet
or not?

3. What sorl of information is the banker interested in?

4. How does the banker wanl lo secure the bank's credil?

5. How is Ihe company going lo use ils currcnl assels?
Part II.

6. Why is the builder asking for Ihe exlension of his note?

7. Whal is his presenl financial standing?

8. Has Ihe land he wan Is lo buy been appraised?

9. Whal sorl of guarantee does Ihe banker insist on
secure the funds the builder will need?

10. What made Ihe builder Ihink lhal he could borrow the
amoun on an open note?

11. Who will hold the lille lo Ihe properly purchased?

12. Why has Ihe banker agreed lo granl the loan on an
open note?

Text

Banks make their profits by lending Ihe money which cus-loiners deposil wilh them to olhers who need il for personal or business reasons. Mosl people need more money lhan Ihey have currently available al some time in their lives.

To be a borrower you must be a customer of the bank be­cause Ihe money will be lent lo you Ihrough a bank account. There are Iwo ways in which you may borrow. The first, and easy, is to spend more money than you have in your current accounl — lo overdraw. The second, and the normal way of borrowing larger amoun Is or for a long period of lime is Ihe loan.

If a manager permils an overdraft on currenl accounl he is likely lo sel a limit lo Ihe size of Ihe overdraft and may stipu­late a dale by which Ihe accounl is back in credil. Businesses whose payments and rcceipls are often irregular will fre-quenlly need lo use overdraft facilities and Ihey are often granted lo private customers as well particularly when Ihe manager knows lhal regular payments are made directly into the account.

If a loan is granted il will be a fixed sum immediately avail­able for a fixed period of time. The principal and Ihe inleresl on it may all become due for paymenl at the end of lhal pe­riod bul for personal loans il is common lo arrange lhat the loan and interest are repaid in equal regular instalment over the period of the loan. A separate account is opened lo record Ihe repayments as Ihey are made.

Whether you are seeking money for business or personal reasons there are a number of Ihings lhal Ihe manager will

I

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want to know before he is prepared to grant your request. The obvious facts will be the amount that you seek and the arrangements for re-payment that you are able to suggest. You need to tell him something about the purpose of the loan, a business loan is likely to help you make profits out of which the loan can be repaid with interest and he will wish to judge for himself whether or not this is likely. Personal loans usu­ally have to be repaid out of an income which will not get any bigger and the manager will be particularly anxious to ensure that you are not being loo optimistic. In deciding this he will be considerably assisted by his knowledge of you and his esti­mate of your character.

Sometimes people do nol ask for enough money because they are anxious about the burden of Ihc repayments. The manager will be wise enough to try and ensure thai you will have sufficient amount of money to do what you want to do. Finally he will consider whether or not you really will be able to repay and what kind of security you can offer against the possibility that you do not repay. In the ease of a business Ihe manager may well want to sec well prepared, relevant docu­ments such as profit and loss accounts and balance sheets for the most recent years. He would also ask about the expected return from the use of the money and want to see soine fig­ures upon which you have based your calculations. Fora busi­ness good security might be one or more of the assets of the business whilst personal loans are often secured by such things as life insurance policies on which the bank is making regular payment for you or the deeds of your house.

Questions on the text:

1. What two kinds of borrowings are possible?

2. In what circumstances an overdraft on current account

is permissible?

3. How are personal loans usually repaid?

4. Will you pay back more than you lx>rrowed? What will
the difference be?

5. What information will the manager require for a per­
sonal loan?

6. What information will he require for a business loan?

7. What other things will he lake into account?

8. What will he need from you to make the loan safer for
him?

9. What does a businessman mean by his expected rate of

return?

10. Why might this be important to the bank manager?

11. What kind of things might you offer as collateral for
a personal loan?

Date: 2015-12-24; view: 1256