You are the lending officer for Bank 6/3. A company wants to borrow money and has...

You are the lending officer for Bank 6/3. A company wants to borrow money and has the following assets: building, inventory and fixtures. A. Discuss how to fully protect the loan. B. Discuss what the bank would do if the debtor fails to pay the loan.

Expert Solution

Every banking company facilitate loans to any entity to meet working capital requirements and to purchase any kind of plant, property and equipment. Lending officer should assess the feasibility of the project before facilitate the borrowings.

A. If the company borrow funds to purchase any equipment/fixtures or to renewal of building, the lending officer should protect the loan primarily with the asset purchased with borrowed funds and collateral security is building property. In other hand if the company borrow funds to meet working capital requirements the lending officer protect primarily with inventory and collateral security is building property.

B. If the company fails to pay the loan, the lending officer (bank) shall classify the loan as non performing asset and create a provision in respect of such loan. and has an option to sell the securities in auction to settlement of loan and pay of any surplus after adjustment of principle and interest.

ekkarill92 answered 2 years ago

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