by: Jay Chatterjee
Banking - Business Loan Application
Operating Lines of Credit and Letters of Credit
You are probably wondering what a series on business banking essentials is doing on a natural health website.
Well, stress caused by financial worries will eventually adversely affect your health. Many business owners operate under constant financial pressure, and this series on commercial banking and commercial finance will arm them with the knowledge that they need to deal confidently with diverse business situations, and with their bank managers. Knowledge is comforting, it is the fear of the unknown that is stressful.
How can I help you? I obtained my Chartered Accountant designation (I'm retired now) in Australia. Upon moving to Canada, I worked for a wholly owned Canadian subsidiary of an American bank. Over time, I rose to become the Senior Vice-President responsible for the commercial finance division. This division granted flexible operating lines of credit, which included letters of credit for importers. In this career, I encountered numerous different types of businesses including trading, manufacturing and importing.
This is not intended to be a detailed accounting or banking course. I have put together the essential information you need in order to give yourself the best chance of succeeding in your business. I shall tell you what your bank manager would like to hear from you at your meetings. I shall tell you the early warning signs that your business needs positive action.
These comments are not for retail business; they apply to wholesalers, importers and manufacturers.
To cover the vast amount of banking information, even in thumbnail format, I shall break it down into various segments. Some will apply to your business, others may not. I am intentionally phrasing the segments in very simple layman's terms. I would advise you to discuss my advice with your accountant, or even your banker, before you decide to act on it.
This first segment deals with the initial loan application. It is assumed that you are applying for an operating line of credit, which may, or may not, include letters of credit. The actual loan within the line of credit will fluctuate at different times, depending on the cashflow, but the bank will put an upper limit which you cannot exceed without special authorization. The limit of the operating line of credit is determined by the bank after evaluating various aspects of your business, including your equity in it.
There is certain basic information that the financial institution requires in order to make the decision to finance your business. You must come to the appointment with the bank armed with this information, ideally accompanied by your accountant who prepared the information package.
" Financial Statements for the past three years
" Pro forma financial statement for the year to date
" Cashflow projections for the current year
" List of aged accounts receivable
" List of aged accounts payable
" Summary of inventory
From the above documents, the bank will ascertain whether your business was profitable in the past, and whether it appears to be profitable this year.
The cashflow projections will show how high the financial involvement will peak at, and how well the loan will be collateralized at any given time.
The accounts receivable list will disclose the quality of the customers and whether a significant percentage of them is delinquent.
The accounts payable list will reveal whether your business is up-to-date with its payments to suppliers.
The inventory summary will show the nature of the inventory and give an indication of whether it can be sold readily.
In addition to examining the above documentation in detail, be aware that a credit check will be done on the business to ascertain if there is any outstanding litigation, and as to its creditworthiness.
Knowing all this, be sure to have satisfactory explanations for any aspects that may appear detrimental to the bank.
It is important to keep in mind that the ideal customer for an operating line of credit, as far as the bank is concerned, is one who:
" Is profitable
" Needs the credit to finance profitable growth
" Does not require too high a loan/equity ratio
" Has adequate collateral to cover the loan at all times
" Has collateral that can be liquidated easily
" Has excellent credit rating
Your strategy? When making the loan application:
" stress the good value of the assets that support the equity of the business.
" Point out that the inventory is current, or can easily be sold.
" Explain that your accounts receivable are up-to-date and that delinquent receivables have been provided for.
" If you have unencumbered fixed assets, point out that there is additional collateral for the bank in them.
" Advise the bank that you have adequate fire insurance to protect the assets, and personal life insurance that could be used to protect the bank, if necessary.
" Recognise that the banker looks to collateral to repay the loan if the business fails. The banker is not really interested in intangible assets, such as goodwill, even though they could be very valuable.
Kamis, 05 Maret 2009
Offshore Banking Information
by: Kevin Wessell
Offshore Banking
Offshore banking or Offshore banks refers to the many banking and investment institutions available in countries and jurisdictions other than the depositor’s home country. While technically any bank can be considered an Offshore bank when it meets the above criteria, the term is generally reserved for the banking institutions located in what are consider low-regulation, low-taxation “haven” jurisdictions.
Since their origin, Offshore banks tended to be unfairly portrayed by both media and the home jurisdictions alike--the accusations have ranged from tax evasion to money laundering, but careful examination of the true purpose of the Offshore banks, and an unbiased examination of where illicit funds are truly held or “laundered” sheds light on the situation. Other false accusations have centered around criticism of unsafe environments, poor regulation, etc. Again, these could not be further from the truth. Most Offshore banking jurisdictions of any repute have very sophisticated, stable banking regulations, and because it is in their best interest to attract and keep depositors, these regulations are geared towards meeting the needs of the depositor. Many of these jurisdictions rely on foreign capital held in their banks as their primary economic factor, and as their only source of foreign investment.
What is Offshore Banking?
The broad definition of an Offshore bank is that of a bank that is located in a jurisdiction or country that is different from the jurisdiction or country that the depositor or investor resides in. One of the many benefits of holding an Offshore banking account is that they are usually located in tax havens that provide substantial asset protection and confidentiality benefits to the account holder. These jurisdictions also often allow for a relaxation of restrictions with respect to the types of accounts available to depositors or investors, and how then can manipulated. This amounts to decreased regulation. The more popular offshore jurisdictions often provide a substantial decrease in tax liability. While technically any bank outside of a depositor’s home country can be called an “offshore bank,” for our purposes here we will focus only on those proven to provide quantifiable benefits as outlined above. These Offshore banks can be located in actual island-states such as the Caymans or Channel Islands, or in landlocked countries such as Switzerland--being surrounded by water is no longer a determining factor.
As mentioned in our opening paragraph, there are a number of misconceptions and myths associated with offshore banking in these offshore financial centers… Are Offshore Banks the Haven of Money Launderers and Criminals? We have additional information on Offshore Banking Myths that should be taken into consideration.
Where Should an Offshore Bank Account be Established?
It is important that the proper jurisdiction be selected when deciding which jurisdiction to use as an offshore banking jurisdiction. The majority of the offshore jurisdictions have prudent, sound regulations in place geared towards safeguarding the deposits and maintaining their confidentiality. However, some weigh their benefits in taxation, while others in confidentiality, and so forth. Though they all offer a comparatively confidential and secure environment, it bears consideration to outline what the banking goals are and then choose the jurisdiction accordingly. A small minority of the offshore jurisdictions do a poor job of managing and regulating their banking institutions, but the informed investor or advisor will deem these as unsuitable for themselves or their clients. Further, these poorly organized and run jurisdictions are often manipulated by illicit depositors and hence prove easy targets of the FATF (Financial Action Task Force) looking for money laundering or other criminal activity.
Offshore Banking History
It is an unfortunate fact that Europeans have always been subjected to relatively heavy tax burdens. This was as true on the British Isles as it was on the continent. Faced with the prospect of watching their hard earned assets and wealth diminish with every out-reach of the tax collector’s hand, they were ripe for a solution. And a solution came--the small, island nation state known as the Channel Islands convinced these frustrated depositors that deposits placed in its banks could be free from scrutiny and hence the heavy-handed taxation burden. The Euros were convinced--and soon this service thrived, with other small jurisdictions becoming savvy to this foreign capital-attracting status and they began to revamp their banking institutions, adopting sound, pragmatic banking rules and regulations that eased the potential concerns of investors and depositors. The Offshore bank was off to a running start!
And soon the term “Offshore banking” became synonymous with any smaller, haven jurisdiction that offered safe, secure, confidential banking with practical regulations. Soon the rest of the world was “in the know,” and began to look at these havens as viable solutions to their needs. Americans, Africans, Asians, etc., found these Offshore banks quite useful for a myriad of reasons. Unlike their banks at home, these Offshore banks were not regularly subjected to political turmoil or economic strife, and were most welcome for their stability and asset protection benefits.
In the years since they have come into greater use and thus more visible, offshore banks and accounts have been unfairly portrayed by the media and by the larger jurisdictions as the stomping grounds of the criminal underground--a veritable haven for their illicitly-obtained assets and funds, or the choice locales for their money-laundering schemes. Money-wise investors and depositors have long known that these prejudices could not be further from the truth. They know that offshore banks can be remarkably effective havens for assets and funds in need of safe, secure, confidential keeping. They know that these banks can safeguard their funds from the perils of civil, economic, or political strife in their home countries. Today, offshore banks continue to keep their end of the bargain and continue to provide a safe, confidential haven for those seeking to safeguard their assets and funds from the perils of undue regulation and taxation.
Many a discriminating depositor has benefited from the safe, confidential, and low taxation environment that Offshore banking has to offer. While it is important to assess your goals and discuss these with a competent, experienced agent before leaping into un-chartered waters, there are many unquestionable benefits provided by establishing an Offshore account. Their reputation among depositors and investors for providing a viable banking location featuring protection from liability and confidentiality is growing, and Offshore banks will continue with this hard-earned reputation for asset protection, tax reduction, and superb confidentiality of deposits.
Offshore Banking
Offshore banking or Offshore banks refers to the many banking and investment institutions available in countries and jurisdictions other than the depositor’s home country. While technically any bank can be considered an Offshore bank when it meets the above criteria, the term is generally reserved for the banking institutions located in what are consider low-regulation, low-taxation “haven” jurisdictions.
Since their origin, Offshore banks tended to be unfairly portrayed by both media and the home jurisdictions alike--the accusations have ranged from tax evasion to money laundering, but careful examination of the true purpose of the Offshore banks, and an unbiased examination of where illicit funds are truly held or “laundered” sheds light on the situation. Other false accusations have centered around criticism of unsafe environments, poor regulation, etc. Again, these could not be further from the truth. Most Offshore banking jurisdictions of any repute have very sophisticated, stable banking regulations, and because it is in their best interest to attract and keep depositors, these regulations are geared towards meeting the needs of the depositor. Many of these jurisdictions rely on foreign capital held in their banks as their primary economic factor, and as their only source of foreign investment.
What is Offshore Banking?
The broad definition of an Offshore bank is that of a bank that is located in a jurisdiction or country that is different from the jurisdiction or country that the depositor or investor resides in. One of the many benefits of holding an Offshore banking account is that they are usually located in tax havens that provide substantial asset protection and confidentiality benefits to the account holder. These jurisdictions also often allow for a relaxation of restrictions with respect to the types of accounts available to depositors or investors, and how then can manipulated. This amounts to decreased regulation. The more popular offshore jurisdictions often provide a substantial decrease in tax liability. While technically any bank outside of a depositor’s home country can be called an “offshore bank,” for our purposes here we will focus only on those proven to provide quantifiable benefits as outlined above. These Offshore banks can be located in actual island-states such as the Caymans or Channel Islands, or in landlocked countries such as Switzerland--being surrounded by water is no longer a determining factor.
As mentioned in our opening paragraph, there are a number of misconceptions and myths associated with offshore banking in these offshore financial centers… Are Offshore Banks the Haven of Money Launderers and Criminals? We have additional information on Offshore Banking Myths that should be taken into consideration.
Where Should an Offshore Bank Account be Established?
It is important that the proper jurisdiction be selected when deciding which jurisdiction to use as an offshore banking jurisdiction. The majority of the offshore jurisdictions have prudent, sound regulations in place geared towards safeguarding the deposits and maintaining their confidentiality. However, some weigh their benefits in taxation, while others in confidentiality, and so forth. Though they all offer a comparatively confidential and secure environment, it bears consideration to outline what the banking goals are and then choose the jurisdiction accordingly. A small minority of the offshore jurisdictions do a poor job of managing and regulating their banking institutions, but the informed investor or advisor will deem these as unsuitable for themselves or their clients. Further, these poorly organized and run jurisdictions are often manipulated by illicit depositors and hence prove easy targets of the FATF (Financial Action Task Force) looking for money laundering or other criminal activity.
Offshore Banking History
It is an unfortunate fact that Europeans have always been subjected to relatively heavy tax burdens. This was as true on the British Isles as it was on the continent. Faced with the prospect of watching their hard earned assets and wealth diminish with every out-reach of the tax collector’s hand, they were ripe for a solution. And a solution came--the small, island nation state known as the Channel Islands convinced these frustrated depositors that deposits placed in its banks could be free from scrutiny and hence the heavy-handed taxation burden. The Euros were convinced--and soon this service thrived, with other small jurisdictions becoming savvy to this foreign capital-attracting status and they began to revamp their banking institutions, adopting sound, pragmatic banking rules and regulations that eased the potential concerns of investors and depositors. The Offshore bank was off to a running start!
And soon the term “Offshore banking” became synonymous with any smaller, haven jurisdiction that offered safe, secure, confidential banking with practical regulations. Soon the rest of the world was “in the know,” and began to look at these havens as viable solutions to their needs. Americans, Africans, Asians, etc., found these Offshore banks quite useful for a myriad of reasons. Unlike their banks at home, these Offshore banks were not regularly subjected to political turmoil or economic strife, and were most welcome for their stability and asset protection benefits.
In the years since they have come into greater use and thus more visible, offshore banks and accounts have been unfairly portrayed by the media and by the larger jurisdictions as the stomping grounds of the criminal underground--a veritable haven for their illicitly-obtained assets and funds, or the choice locales for their money-laundering schemes. Money-wise investors and depositors have long known that these prejudices could not be further from the truth. They know that offshore banks can be remarkably effective havens for assets and funds in need of safe, secure, confidential keeping. They know that these banks can safeguard their funds from the perils of civil, economic, or political strife in their home countries. Today, offshore banks continue to keep their end of the bargain and continue to provide a safe, confidential haven for those seeking to safeguard their assets and funds from the perils of undue regulation and taxation.
Many a discriminating depositor has benefited from the safe, confidential, and low taxation environment that Offshore banking has to offer. While it is important to assess your goals and discuss these with a competent, experienced agent before leaping into un-chartered waters, there are many unquestionable benefits provided by establishing an Offshore account. Their reputation among depositors and investors for providing a viable banking location featuring protection from liability and confidentiality is growing, and Offshore banks will continue with this hard-earned reputation for asset protection, tax reduction, and superb confidentiality of deposits.
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