Real-Life Communication
Getting a loan from a bank for your business can be a complicated
process.
"We look at a lot of things before we finalize a loan," said
Doug Wakefield, a commercial account manager. "We calculate the client's
ability to pay, we look at economic trends and how they will impact on the
business and we look at what the client has to offer as collateral against
the loan."
Usually, after all this examination, the business has no
problem paying back the loan. But there are situations where the account manager
has to "call in" the loan because the client is not making their monthly payments.
"This
means we give them so many days to come up with the money to pay us the whole
amount that's owed."
If the client still can't pay off the
loan, their collateral may have to be sold to settle the debt.
"It's
not a pleasant thing to do, but it's part of the job."
Throughout
this process, the client has to be kept informed of what's happening.
It can be a confusing time. Here's an example:
As the commercial
account manager of a credit union you have had to "call in" a business loan
to a local entrepreneur. This means you're asking for immediate repayment
of the remaining principal and interest on the loan. When the client received
the loan, he agreed to have his antique car listed as security for the loan.
This means that since he's now unable to repay the loan, the bank can
sell the antique car and use the money to pay off what's owing on the
loan.
The bank pays an auctioneer $1,000 to dispose of the car and
it is sold for $35,000. The amount left to be paid on the loan is exactly
$29,784. The entrepreneur expects to get $5,216 from the sale of the car,
but he'll be disappointed.
Read the following clauses from his
loan agreement and calculate how much he'll get.
If
the Borrower(s) fail to make any loan payment (principal or interest) or any
other payment hereunder to the Credit Union when due, then the Credit Union
may, after complying with the provisions of the Consumer Credit Transactions
Act require immediate payment of the entire outstanding balance of the loan.
The
Borrower(s) agree to pay all expenses, including legal expenses, incurred
by the Credit Union in taking the security of the loan, in collecting the
loan or in enforcing and realizing upon the security of the loan.
The
Borrower(s) agree to forthwith pay to the Credit Union a charge of $17.00
for each check or bill of exchange used to make a payment on the loan which
is dishonored. If no charge is stated, the charge shall be the Credit Unions'
normal charge in effect therefore.
Unless otherwise agreed in writing
between the Credit Union and the Borrower(s), when not in default the Borrower(s)
may repay all or part of the loan without notice or bonus.
Figure
out how much money the entrepreneur will get from the sale of his car and
write him a letter explaining the process you used.