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Any banker wants to make loans to firms that are solvent,
profitable, and growing. The two basic financial statements used to
determine those conditions are the balance sheet and profit-and-loss
statement. The former is the major yardstick for solvency and the
latter for profits. A continuous series of these two statements
over a period of time is the principal device for measuring
financial stability and growth potential.
You can use short-term bank loans for purposes such as financing
accounts receivable for, say 30 to 60 days. Or you can use them
for purposes that take longer to pay off--such as for building
a seasonal inventory over a period of 5 to 6 months. Usually,
lenders expect short-term loans to be repaid after their
purposes have been served: for example, accounts receivable
loans, when the outstanding accounts have been paid by the
borrower's customers, and inventory loans, when the inventory
has been converted into saleable merchandise.
The amount of money you need to borrow depends on the purpose for
which you need funds. Figuring the amount of money required for
business construction, conversion, or expansion--term loans or
equity capital--is relatively easy. Equipment manufacturers,
architects, and builders will readily supply you with cost
estimates. On the other hand, the amount of working capital you
need depends upon the type of business you're in. While rule-of-
thumb ratios may be helpful as a starting point, a detailed projection
of sources and uses of funds over some future period of time--
usually for 12 months--is a better approach. In this way, the
characteristics of the particular situation can be taken into
account. Such a projection is developed through the combination
of a predicted budget and a cash forecast.
Banks also take commodities as security by lending money on a
warehouse receipt. Such a receipt is usually delivered directly to
the bank and shows that the merchandise used as security either has
been placed in a public warehouse or has been left on your premises
under the control of one of your employees who is bonded (as in
field warehousing). Such loans are generally made on staple or
standard merchandise which can be readily marketed. The typical
warehouse receipt loan is for a percentage of the estimated value
of the goods used as security.
The bank may take accounts receivable on a notification or a
nonnotification plan. Under the notification plan, the purchaser of
the goods is informed by the bank that his or her account has been
assigned to it and he or she is asked to pay the bank. Under the
nonnotification plan, the borrower's customers continue to pay you
the sums due on their accounts and you pay the bank.
If you use stocks and bonds as collateral, they must be marketable.
As a protection against market declines and possible expenses of
liquidation, banks usually lend no more than 75 percent of the
market value of high grade stock. On Federal Government or municipal
bonds, they may be willing to lend 90 percent or more of their
market value.
A loan agreement, as you may already know, is a tailor-made
document covering, or referring to, all the terms and conditions
of the loan. With it, the lender does two things: (1) protects
position as a creditor (keeps that position in as protected a
state as it was on the date the loan was made) and (2) assures
repayment according to the terms.
The lender reasons that the borrower's business should generate enough funds to repay the loan while taking care of other needs. The lender considers that cash inflow should be great enough to do this without hurting the working capital of the borrower.you are bound by them. Black ICE | Paragon Encrypted Disk | Super Pop Up Blocker | Site Publisher | Ghost-Surf | Spy Cop | Alcohol 120% | Mail Box Filter | Cleaning Agent | Vegas Experts | Guardster | Casino Perks | I Spy Now | Hacker Blocking | Spy Buddy | DVD Ripper |