Taking Bank Management 8th edition. The scenario, Wades Office Furniture, can be

Question

Taking Bank Management 8th edition. The scenario, Wades Office Furniture, can be found on pages 555-569. The following is the discussion question I have to answer. Thank you. Not sure what else is needed besides the book in which I thought could we access. Please let me know what else I need to add

Review and work through the analysis of Wade's Office Furniture (Exhibits 14.5, 14.6 and 14.7 in your text). What are the stages of credit analysis? Could you analyze this business and help it grow but also help the bank? Why or why not?

Explanation / Answer

Stages of credit analysis:

There are basically three stages of credit analysis---collection of facts, analytical review, and decision making.

Collection of facts: This is the stage of collecting information of applicant. In this stage all the necessary detail of applicant’s project, means of finance, and projected financial statements are collected. These are necessary for the second stage.

Analytical review: This is the evaluation of credit worthiness of the applicant. Various ratios could be calculated through the data on financial statements, which gives idea about the solvency and liquidity of the applicant.

Decision making: This is the last stage of finalizing the fact whether the applicant would be borrower or not. Credit history of the applicant depends on this situation.

A business should grow as per the normal operating activity. But the business while growing should not forget the bank’s favoring. This is the bank’s loan which makes the business to grow. Therefore, it becomes the ethic of the business to repay the amount of loan and its interest in time. This is required for “no objection” clearance also. A borrower not having the “no objection” clearance would not get loan further.

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