Lesson 8

1. Read and translate the text:

Principles of Good Lending

Since the purpose of lending is to earn interest and make profit financial managers must be sure that their borrowers will be able to make repayments

in full and within the required period of time. To help credit managers there are some principles of good lending based on a logical approach (логічний підхід) for analyzing any lending proposition. That approach consists of lending guidelines, following the mnemonic CAMPARI.

Character of the customer

Ability to borrow and repay

Margin of profit

Purpose of the loan

Amount of the loan

Repayment terms

Insurance against the possibility of non-payment

Character of the customer is a very important fact to be judged about.

Factual information about a person must cover the following matters:

• the borrower's personal stability, that is, whether he owns, rents, or shares his home; if he is married, has children (that is more stable); if he has a job, how long;

• age and health of the customer (a person who is old or in poor health has less chance to get a loan);

• wealth (it means the amount of his salary, the value of his home, its furniture);

- outgoing, that is, he won't repay a loan if his spending exceed his income.

Ability to borrow and repay depends on his ability to manage the affairs of his own business. Examine his CVs or look for appropriate professional qualifications.

Margin. The fact is: you want to lend money to make money. So it is important to consider the rate of interest at which you are going to lend, the commission to be charged at the outset (cnoчатку) and any other fees. A loan for a risky venture, such as a new business, must be offered at a higher rate of interest to compensate the lender for the risk he takes that the lending will not be repaid. A secured loan to a person of good standing may be offered at a lower rate.

Purpose of the loan. A lender shouldn't accept such purposes as to finance a big increase in stock-holding or debtors, to repay existing debts, for speculating purposes, illegal loans.

Amount of the loan. You must state exactly how much the customer wants to borrow. If he asks for too much, and more than he needs it can reduce bank's overdraft facility. And on the contrary, you must check that the customer has not asked for less than he really needs. Otherwise (iнaкше) the bank may later have to lend more to safeguard the original advance.

Repayment terms. In order to check the likely ability of the customer to repay the advance, the lender must do three things:

• calculate what the repayments with interest will have to be;

• obtain evidence (доказ, свідчення) that the source of repayment (proceeds from asset sale, salary, business profits) will be sufficient.

• mind the age of the borrower: a 20 year mortgage should not be granted to a 55 year old, for example.

Insurance, or security. A loan must be backed up by something valuable, collateral, as security against lender's losses: property, stocks, accounts receivable, etc.

Commentary:

wealth - достаток

outgoing(s) (syn. spending, expenses) - витрати

margin - маржа

lending proposition – пропозиція дати гроші в позику

to make repayments in full – повернення грошей повністю

a person of good standing (syn. creditworthy person) – фінансово спроможна людина

to safeguard - захищати

proceeds – виручка, прибуток

collateral (syn. back-up, guarantee) - застава

accounts receivable – дебіторська заборгованість

2. What have you learnt about:

1. a logical approach for analyzing any lending proposition?

2. Who has less chance to get a loan?

3. Why is it so important to consider the rate of interest at which you are going to lend?

4. What lending propositions are usually not accepted?

5. Why is the timescale for repayment very important?

6. What is regarded as good security to back up a loan?

3. Practise your speech:

• discuss with your bankers their lending propositions;

• you are a lender. In what way might you judge the character of the borrower?

• discuss with your customer his purpose of the loan needed, outline repayment terms.

4. Study the terms used in financial management:

Assets	активи – власність юридичної або фізичної особи
Liabilities	зобов’язання
Equity	Капітал компанії – різниця між активами і поточними зобов’язаннями
Mortgage	іпотека; застава; іпотечний кредит – передача позичальником кредитору права на нерухомість як забезпечення позички
Leasing	лізинг – довгострокова оренда машин та обладнання споруд виробничого призначення
Liquidity	ліквідність – здатність компанії своєчасно виконати зобов’язання
Overdraft	овердрафт – кредит по поточному рахунку або контокорентний кредит (одержання кредиту шляхом виписки чека або платіжного доручення на суму, яка перевищує залишок грошей на рахунку)
Personal loan	Особиста банківська позичка (звичайно без забезпечення)
Standby credit	резервний (гарантійний) кредит, який за необхідності можна одержати протягом обумовленого періоду

5. Extend your active vocabulary:

To value (syn. to evaluate) – оцінювати, цінити

e.g. It’s your duty to value financial position of our company one time a week at least. I value your opinion.

Value – цінність, вартість

e.g. His advice was of great value to us.

1. the market/face value of the product – ринкова/номінальна вартість

2. goods to the value of UAH25 – товар вартістю 25 гривень

3. the scale of values – шкала цінностей

Valuable – цінний; мн. коштовності

e.g. Mr. Green, a very valuable customer to see you. – Good, let him com in.

Valuation – оцінка (майна)

e.g. The surveyor made a valuation of the property.

Valued – оцінений

e.g. Your company’s assets valued at $500,000 may be used as collateral in our lending proposition

Valueless – нічого не вартий

e.g. His words are valueless.

6. Suppose you are a bank credit manager. A customer requests a loan for his company. Ask him 10 questions on your loan interview.