Getting a credit

I. Read and translate this text in a written form:

Bank Loans

A bank loan is an advance of a specified sum of money to an individual or a business (the borrower) by a commercial bank, saving bank, finance house or another financial institution (the lender). A bank loan is a form of credit which is of extended for a specified period of time, usually on fixed-rate term related to the base interest rate. The principle is usually repaid either on a regular installment basis or in full on the appoint redemption date. Alternatively, a bank loan may take the form of overdraft facilities under which the customers or borrowers can borrow as much money as they require up to a pre-arranged limit and are charged interest on outstanding balances.

In the case of business borrowers, bank loans are used to finance working capital requirements and are often renegotiated shortly before expiring, to provide the borrower with a revolving line of credit.

Depending upon the nature of the loan and of the degree of risk involved, bank loans may be unsecured or secured, the latter requiring the borrower to deposit with the bank collateral security (e.g. title deeds to a house) to cover against default on the loan. The lender may retain this security in the event of the default.

When a bank makes a loan, it is uncertain about whether the loan will be repaid. Low-risk borrowers default on their debts only for reasons beyond their control. High-risk borrowers take excessive risks with the money they borrow and frequently default on their loans. But banks have no sure way of knowing whether they are lending to a low-risk or high-risk borrower. Banks use various signals to distinguish between low-risk and high-risk borrowers and very often they ration or limit loans to amounts below those demanded.

In the case of individual borrowers banks use such signals as length of time in a job, ownership of a home, marital status, age.

If a firm is demanding a loan, the bank will use such signals as reliability of the firm, its credit worthiness, the purpose of the loan, the real value of the project, its recuperation period and many other factors, before it makes a decision if the loan should be provided.

Contents of Loan Agreements

Normally a loan agreement starts with a preamble, then very detailed articles of the agreement come, and finally a few annexes are given as a rule.

Among the articles of a standard loan agreement the following should be mentioned:

- amount of the loan

- use of proceeds of the loan

- disbursement

- repayment of principle

- interest, commitment charge and method of payment there of

- fees, expenses

- taxes, duties and other levies or charges

- payee and currency

- remedies

- cancellation

- particular covenants

- overdue payment

- waiver

- disclaimer

- arbitration

- evidence of authority

- collateral

- guarantee

- representations and warranties

- event of default

- assignment

- effectuation of agreement

- severability

- governing law

- language

- secrecy

- miscellaneous

As to annexes, the following can often be attached to loan agreements:

- confirmation of the loan by the lender

- letter of guarantee

- legal opinion

- amortization schedule

- disbursement procedure

- payment instructions and others.

II. Finish the sentences:

1. A bank loan is an advance…………….

2. A bank loan is a form of credit………..

3. A bank loan may take a form…………

4. Bank loans are used to finance……….

5. Bank loans may be unsecured………..

III. Match the equivalents:

1.Loan	a) револьверная кредитная линия
2. To demand a loan	b) документ, удостоверяющий право собственности
3. To grant/to allow/to make/ to provide a loan	c) по частям
4. To repay a loan	d) степень данного риска
5. A revolving line of credit	f) просить кредит
6. Principle	g) чрезмерный риск
7. Installment	h) выплатить кредит
8. On an installment basis	i) основная сумма кредита
9. Redemption	j) ограничивать кредитование
10. Outstanding	k) кредит
11. To negotiate a loan	l) период окупаемости
12. Degree of risk involved	m) давать кредит
13. Low risk	n) не оплатить что-либо
14. Excessive risk/ high risk	o) частичный взнос
15. Title deed	p) страховать против неплатежа
16. To cover against default	q) неоплаченный остаток
17. To default on smth	r) получить кредит
18. To ration a loan to limit a loan	s) погашение
19. Recuperation period	t) малый риск

IV. Read the dialogue between a bank manager and one of her customer:

A: We’ve been short of space for some time now and finally we’ve decided we must move to bigger premises. We’ve looked at a number of properties in the area and come down in favour of this one in the centre of town.

B: How much are they asking for it?

A: $300,000. But we think we’ll get it for $ 280,000

B: I see. That’s a major investment for a firm of your size.

A: We realize that, but we see it as a valuable resource for the business which will help us to expand, and at the same time a sound investment.

B: I understand. Are you looking for a loan to cover the total price?

A: Well, we’ve considered that. We could raise $ 50,000 by cutting back on management bonuses and one or two investment projects.

B: But ideally you’d like to borrow the full $300,000

A: That’s right

B: What sort of term were you thinking of?

A: Well, either fifteen or twenty years. Could you give me a quote for both terms?

B: Yes, just a moment…I’ll check my tables. Well over fifteen years on fully fluctuating interest it’d be $ 3,500 a month, that’s based on 2 per cent above current base rate. And over twenty years it’d be $ 3,000 a month.

A: Well either fifteen or twenty years Could you give me a quote for both terms?

B: Yes, just a moment…..I’ll check my tables. Well, over fifteen years on fully fluctuating interest it’d be $3,5000 a month, that’s based on 2 per cent above current base rate. And over twenty years it’d be $ 3,000 a month.

A: Yes, that’s roughly what we calculated. I think we’d prefer the twenty year loan.

B: Right, let’s come back to that. Have you brought some up-to-date figures for me?

A: Yes, I have. As you can see, turnover is up on last year by about 20 per cent and profits look like being even better – about 25 per cent higher than last year. That means a net profit of abound $ 30,000.

B: That sounds very healthy. Have you done any projections?

A: Yes, we have. As you know it’s difficult to forecast accurately in our line of business, but we reckon turnover should continue to increase at this sort of rate for the next five years and our margins, if anything, should get better.

B: Good, perhaps you can leave figures with me.

A: of course

B: What worries me is your cash flow-at present you’re operating at close to the limit of your $50,000 facility – in fact, sometimes you are straying the wrong side of it. Do you see any improvement in that area?

A: Well, as you know, in our line of business, we’re always going to have a cash flow problem. As we expand, it’s difficult it’s difficult to avoid pushing up the need for working capital.

B: I realize that you’re thinking of taking on an additional major drain on cash. On the present figures, you may well have problems financing the payments.

A: We are confident we can get the sales to justify this investment. Also I’m sure you’ll find the security on the building is more than enough. We’ve had the property valued and been told is worth at least $350,000. On top of that, our fixed assets stand at $ 75,000 on the last balance sheet.

B: That’s true but what worries me is your current liabilities – to the bank and also your current creditors. According to these figures, that stands at nearly $90,000

Complete the information according to the dialogue:

Reason for loan:……………………………………………………………………………..

Amount of loan:…………………………………………………………………………….

Term of loan:……………………………………………………………………………….

Interest rate:………………………………………………………………………………..

Current installment:…………………………………………………………………………

Security:……………………………………………………………………………………..

Type:……………………………………………………………………………………….

Market value:………………………………………………………………………………

Turnover:………………………………………………………………………………….

Profits:…………………………………………………………………………………….

Assets:……………………………………………………………………………………..

Liabilities:…………………………………………………………………………………

V. Answer the questions:

1. How could the firm raise $ 50,000 towards the cost of the property?
2. What are the firm’s projections for turnover and profits?
3. What is its current overdraft?
4. Who does it owe money to?

VI. Match the words/expressions on the left with an appropriate combination on the right, to make am idiomatic phrase:

1. a short of	a) figures
2. a major drain	b) the wrong side
3. close to	c) investment
4. our line of	d) space
5. to come down	e) business
6. a firm of	f) calculation
7. to stray	g) on cash
8. up-to-date	h) in favour of
9. rough	i) the limit
10. sound	j) your size

Unit 2

Text A