Question

In: Accounting

SA1 - Interview an Accountant or Accounting Firm OR a Banker Option 1 – Interview an...

SA1 - Interview an Accountant or Accounting Firm OR a Banker

Option 1 – Interview an Accountant or Accounting Firm

Contact an accountant and conduct an interview on forms of businesses, taxes, licenses needed, and so forth.

1)    Which legal structure do you recommend? Why?

2)    Can this legal structure be changed once it has been established?

3)    Should the business be formed in or out of state? Why?

4)    What are the tax implications of the legal structure recommended?

5)    Will I need an employer identification number (EIN)?

6)    Should I open a business bank account, or will my personal account be sufficient? Why?

7)    Do you recommend using accounting software? Why?

8) What are the strengths and weaknesses of this business form?

OR,

Option 2 – Interview a Banker

Contact a bank manager and conduct an interview on loan procedures and qualifications.

1)    What is the current environment like for bank loans for small businesses?

2)    What are the current rates the bank charges for business loans?

3)    What criteria are considered in the determination of the rate of the loan and the amount that can be borrowed?

4)    Are you lending money to new/small businesses?

5)    What is the difference between a line of credit and a loan?

6)    Do you sell your loans?

7)    What financial information is required by the lender?

8)    How do I obtain a loan application?

9) What types of questions might be asked in addition to those in the loan application?

10) What types of security might be requested to secure the loan?

11) What types of businesses normally get loans?

12) What are the characteristics of successful borrowers?

Solutions

Expert Solution

1) What is the current environment like for bank loans for small businesses?

The government is encouraging small businesses.

2)    What are the current rates the bank charges for business loans?

Small business loans are available at 8-10% p.a. interest rates.

3)    What criteria are considered in the determination of the rate of the loan and the amount that can be borrowed?

  1. The Credit score which is maintained in the Centralised database based on the social security number
  2. The family financial health
  3. The net worth position of the borrower
  4. The value and risk of the collateral
  1. Are you lending money to new/small businesses?

Yes, 20-30% of our total lendings are to small businesses

5)    What is the difference between a line of credit and a loan?

A line of credit is an overdraft account with the bank. The bank allows a certain limit of overdrawing based on the collaterals deposited with the bank, and charges interest based on the outstanding amount at every period end.

In case of a loan, the tenure, repayments and instalments are fixed and pre decided. The rate of interest is as per mutual understanding.

  1. Do you sell your loans?

Yes, the receivables can be sold in the market at a discount rate with or without transfer of absolute liability. Whether to sell the loan or not depends on our overall statutory liquidity requirements as stipulated by the Federal Bank.

  1. What financial information is required by the lender?

The credit score, title deeds on collaterised assets and previous years tax returns are required to be submitted to the lender.

  1. How do I obtain a loan application?

The disbursement deparment representative shall assist you with that.

  1. What types of questions might be asked in addition to those in the loan application?
    1. Do yo have any other loan obligations?
    2. Have you ever served time for civil disobedience/financial fraud.
    3. Do you have health insurance?
    4. How many members are in your family? What is your family income and expenditure?
    5. What are your contingent financial liabilities?

  1. What types of security might be requested to secure the loan?
    1. Commercial/ Residential Property
    2. Stocks/ Shares of a bluechip company
    3. Interest in Joint Venture/ Partnership firms
    4. Government Treasury Bonds
    5. Cash collateral upto a percentage of loan
    6. Vehicle title documents

  1. What types of businesses normally get loans?

Small manufacturing business or retail stores are easier to get financed.

  1. What are the characteristics of successful borrowers?

No defaults in interest or principal repayment in the past or present loans, high creditworthiness, stable personal financial net asssets position are some of the distinct characteristics of a borrower.


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