Bank Lending and Other Services

When a customer wishes to borrow from a bank his branch manager will have to consider the following points before deciding whether to lend:

- the character of the customer:

Is the customer honest and has his banking record been sound?

- the amount needed:

Has the customer asked to borrow enough money and does he have any savings which can be used alongside the loan?

- the period of payment:

For how long does the customer need the money?

- the purpose of the loan:

What is the money to be used for?

- the capability of the customer to repay the loan:

Will the loan be used to give sufficient profit to repay the loan or does the customer have sufficient income from other sources?

- the collateral security available:

Does the customer have any assets, e.g. a house or share certificates, which can be used as security for the loan? If the customer is unable to repay, then the security can be sold in order that the bank may obtain this money.

As part of its general economic policy the government might instruct banks to give preference to certain types of borrowings, e.g. exporters.

Loans

A loan is granted for a stated sum of money, e.g. £ 2,000 for a stated period of time, e.g. for two years. The rate of interest is fixed for the length of the loan and is based on the principal (the full amount borrowed), whether or not at has been used. When a loan is agreed a separate loan account is set up for the customer. Thus loan account is debited with the amount borrowed, while at the same time the customer's current account is credited with that amount. The customer can then make use of this sum immediately from his current account and repayments will be made every month to the loan account, usually by standing order, until the loan plus interest is repaid. Before granting a loan, the bank manager will ask the customer to complete a loan application form, so that the manager can assess the ability of the customer to repay.

Overdrafts

An overdraft occurs when the holder of a current account is allowed to issue cheques for more than the client has in his account, up to an agreed maximum. The rate of interest can vary during the period of the overdraft and is charged only on the amount overdrawn on a day-to-day basis.

An overdraft can be repayable on demand although in practice banks rarely insist on this. Before granting an overdraft the bank manager will probably not ask for an application form to be completed, but will simply talk to the applicant. An overdraft is, therefore, a less formal method of lending, although the manager must still ensure that the overdraft will be repaid.

A firm will use a loan when buying fixed assets, e.g. machinery or vehicles, where the precise amount to be spent and the time when required are known. A personal loan can be taken out by an individual to buy, say, a car.

A firm will use an overdraft as working capital to buy stock, pay wages etc., where the amount needed is not exactly known and may vary from day to day. An individual can take out an overdraft to cover a period when, for example, he suffers a temporary loss of income, or has to meet unexpected expenses.

Active Words and Phrases:

borrow (money) from a bank	брати позику в банку	grant (a loan)	надавати (позику)
savings	заощадження	rate of interest	банківська ставка
loan	позика	to debit	дебетувати (віднести на дебіт)
repay the loan	повертати позику	credit	записати на кредит
security	гарантія	standing order	регламент, розпорядок
profit	прибуток	overdraft	перевищення кредиту.
income	дохід