7 Questions
What is the meaning of loan packaging?
Presentation of credit facilities granted to a client after financial analysis and understanding the client's business operations.
What are the influencing factors in loan packaging? (Select all that apply)
Classes of customers
Cash in Advance (CIA) terms require payment after the order is shipped.
False
____ before Delivery (CBD) terms are synonymous with CIA, with no delivery until payment is made.
Cash
Match the following payment terms with their descriptions:
Cash on Delivery = Payment made at the time of delivery Short Terms = Limited duration credit offers Receipt of Invoice Terms = Payment immediately upon receiving the invoice
What is the credit approval process?
Formal authorization to obtain a loan, usually from a bank.
What factors are important for credit approval? (Select all that apply)
Current risk profile of the borrower
Study Notes
Loan Packaging
- Loan packaging is the presentation of credit facilities to a client after thorough financial analysis and understanding of the client's business operations.
Important Considerations
- Factors influencing loan packaging include general considerations, competition, market and product characteristics, classes of customers, and profitability.
- Contractual considerations include the application of a seller's credit policies to its terms.
Cash and Prepayment Terms
- Cash terms require payment before or at the time of the transaction.
- Cash in Advance (CIA) terms require payment via cash methods before shipping.
- Cash Before Delivery (CBD) terms require payment before delivery.
- Cash with Order (CWO) terms require payment before manufacturing a product.
- Cash on Delivery (COD) terms require payment to the transportation company at the time of delivery.
Short Terms
- Short terms are of limited duration and are often used for perishable goods or tight credit limits.
- Short terms provide customers with the advantage of quickly examining the product before payment.
Bill-to-Bill Terms
- Bill-to-Bill terms require payment for the previous shipment when a new delivery is made.
- Examples of Bill-to-Bill terms include weekly deliveries of perishable foods and gasoline.
Receipt of Invoice Terms
- Receipt of Invoice terms require payment immediately upon receipt of the seller's invoice.
- Payment must be received before the next order is shipped.
Credit Card and Purchasing Debit Card Transactions
- Credit card and purchasing debit card transactions provide the seller with quick payment.
Loan Approval
- Loan approval is the formal authorization to receive a loan, usually from a bank.
Credit Approval Process
- The credit approval process must avoid substantive errors (erroneous assessment of credit exposure) and procedural errors (incomplete or wrong presentation of credit exposure).
- Four factors to consider in the segmentation of credit approval processes are type of borrower, source of cash flows, value and type of collateral, and amount and type of claim.
Important Factors for Credit Approval
- Factors to consider in credit approval include the purpose of credit and sources of repayment, current risk profile of the borrower, repayment history and capacity, business expertise, proposed terms and conditions, and adequacy of collateral or guarantees.
Learn about the key factors to consider when structuring loan terms and conditions, and the essential items included in loan negotiation, such as tenor, repayment, covenants, and security.
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