Pledge Movable property (Goods/Stocks/Shares/Debentures etc.) Hypothecation Hypothecation Movable property (Raw materials of factories/stocks in a store room showroom /motor vehicles etc.) Mortgage Immovable property (Land/Building/Factory) Lien FDR/DPS/Sanchaypatra/ICB Unit Cert/Wage Earners Bond etc Assignment Insurance Policy/Money due from govt. Dept/Work order etc. Set-Off ********* 10. Limitation of loan section: There are some limitations in the advance section of this bank. Among them the major limitations are- Lack of good party Party characteristics are not good all time. Sometime pressure from top level though the party condition is not good. Here there is lack of enough loan schemes that are effective now days. Many old payment of loan is due, that creates pressure now Lack of information about old loan that creates problems to continue the case of default loan Page | 32
Lack of proper documentation about loan. Loan Interest rate is very competitive. 4.5 Assessing Borrower Creditworthiness: When you apply for a loan, the lender will evaluate your request in order to determine whether or not it is a good decision to lend you and your business money. A common evaluation framework is the Five C's of Credit: character, capacity, capital, collateral, and conditions. Character is the obligation that a borrower feels to repay the loan. Since there is not an accurate way to judge character, the lender will decide subjectively whether or not you are sufficiently trustworthy to repay the loan. The lender will investigate your payment history, review a credit bureau report, and consider your educational background and experience in business. The quality of your references and the background and experience of your employees will also be considered. Capacity refers to your ability to meet the loan payments. The prospective lender will want to know exactly how you intend to repay the loan. The lender will consider the cash flow from the business, the timing of repayment, and the probability of successful repayment of the loan. Lenders will also consider payment history as an indicator of future payment potential. For example, if you have a history of not paying back loans then it becomes more difficult to obtain additional loans. Capital is the money invested in the business and is an indicator of how much is at risk should the business fail. Lenders will generally consider the company's debt-to-equity ratio to understand how much money the lender is being asked to lend (debt) in relation to how much the owners have invested (equity). A high debt-to-equity ratio also indicates that the company already has a high level of loans and could be a higher financial risk. Collateral is a form of security for the lender. Banks usually require collateral as a type of insurance in case you cannot repay the loan. If you default on the loan, then the lender takes possession of the collateral in place of the debt. The loan agreement should carefully specify all items serving as collateral. Equipment, buildings, accounts receivable, and inventory are all potential forms of collateral.
You've reached the end of your free preview.
Want to read all 56 pages?
- Fall '19
- Interest, Janata Bank Limited