Reference no: EM133171279 , Length: 5 pages
Assessing a lending proposition
ABC Enterprises Ltd, a family business set up by Bonny and her husband Max, imports millinery materials from all over the world. It was established 10 years ago and has a significant need for increased warehousing space. The directors are looking to buy new premises, in the company name, outside of Peterborough for £3 million. They have cash of £750,000 that has been built up as a cash purchase and want to borrow the balance from their bank. A new loan of £2.25 million in the name of the limited company will only be the legal liability of the company and the directors will have no personal liability for the loan.
Further information: The business currently rents its existing premises but has outgrown them. The present five-year lease is due for renewal in 12 months' time (lease payments are £125,000 per annum). The new premises are purpose-built.
The directors have calculated they will need to make repayments of £150,000 per annum on the new loan. You are required to examine how a bank might decide how much it should lend. Your lending proposal will be:
- Using the lending structure PPARTSI (Person, Purpose, Amount, Repayment, Term, Security, Income), consider the above lending proposition.
- Concentrating on the non-financial elements of the structure, detail your answer.
- What other questions will the bank want to ask the customer about this transaction?
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