Business Banking Terms and Conditions - Essay Example

? Business Finance Assignment Introduction Different banks have different criteria and requirements for issuing loans. We that banks have reduced their lending to both individuals and firms by including more stringent requirements for loans than existed in former times. Most banks have cut down their lending rates by up to 25%, with some going as high as 30% against their former lending portfolios. For many banks, the prospect of dishonored loans has resulted in stringent tactics that are aimed at curbing this crisis and improving their lending services to the few who meet their requirements. The HSBC Bank is earnest in the provision of finance to individuals, small, medium sized and large companies to facilitate both formation and growth. The bank is the intent on guiding institutions on ways of improving themselves so that they are more likely to acquire finance whenever necessary; HSBC finances business endeavors aimed at enhancing the business’ ambitions both in the country and overseas. Moreover, the bank believes in cooperation between itself and the client by providing guidance on ways of presenting strong applications for finance in order to improve the clients’ business. The bank has a number of finance products, which target various entities; the small business loan, for instance, is ideal for funding long term business projects and programs. This business loan encompasses loans ranging from 1,000 – 25,000 pounds; thus, it is well within our reach and is repayable in between one year to ten years. HSBC charges a fixed rate of interest for the duration of the loan, therefore, no terms on reducing balance are offered under this loan type. We have an option to pay or defer the first monthly repayment for up to three months once the loan has been disbursed. Such deferral is non the less considered as part of the loan repayment duration, and interest is charged for every deferred month. In order for clients to track repayments and account for the outstanding balance, the bank has incorporated the Business Internet Banking portal on its website where all interested clients receive a unique user name and password to enable them access their accounts portfolios. We note that HSBC’s charges and rates provide additional avenues for spending money. For instance, all loan applications are subjected to a 100 pound arrangement fee. This covers processing fees and all paperwork. Once disbursal is done, and payment is in default, the bank charges an additional fee for the default. However, the bank allows for overdrafts on loans, essentially, this is additional funding on an already existing loan. In order to process such an overdraft, the bank charges an additional fee, and the interest is compounded for both the loan and the overdraft; these fees and charges are deducted from the client’s current account which is a mandatory requirement for all loan applicants. The bank rewards early loan settlement by awarding rebates according to the Consumer Credit (Early Settlement) Regulations 2004 (HSBC. 2011, p.14-17). The Royal Bank of Scotland (RBS), on the other hand, offers different loan packages based on the amount borrowable and the total repayment period. For instance, the bank offers both business and corporate banking modules; under corporate banking, businesses can only borrow from 26,000 pounds. The business banking module is thus better suited to our requirements as it offers facilities to individuals and small companies. Under business banking, RBS offers small business loans and fixed rate business loans. These loans entail borrowing of up to 25,000 pounds and limits of 25,001-250,000 respectively. The small business loan is hence our best option in RBS. Under this type of finance, the bank may require security in the form of either a vehicle or other assets if it feels your repayment potential is questionable. The bank is quite a versatile option as it does not require payment of any arrangement or security fees. However, much like HSBC, RBS’ loans are offered on fixed interest rates with a repayment period of up to ten years. RBS does not, however, have a minimum repayment period; thus, a client repays the facility on the merit of ability to repay within an agreed upon term. Moreover, the bank requires personal directors’ guarantees to facilitate loan processing aimed at strengthening the business. The bank offers a competitive package for its Royalties Business Customers whereby if one has a Royalties Business account; one can take advantage of a discount of up to 1% for all small business loans. We, however, note that certain RBS regulations such as their requirement of any early loan repayments under the Royalties Business account must pay an additional fee of up to two months’ interest. This will discourage any early repayment plans in an effort to save funds (Wolinski. 2011 p. 32). Further research into finance products offered by banks led me to Barclays Bank; this multinational bank offers a vast array of business finance plans ranging from loans to mortgages. The bank’s small business loan module offers a finance range from 1,000 to 25,000 which are matched to the current business plans and formulated to suit the an individual’s business plans. The bank guarantees that this type of finance is not only quick, but straightforward in accessing finance. While Barclays Bank may require security, no fee is chargeable on it, thus reducing the total fees payable for the finance (Wolinski. 2011, p.65). The bank allows for a repayment period of between one to ten years giving an option of monthly, quarterly or semi-annual loan repayment schemes. All these repayment schemes must comply with the stipulated maximum repayment period. The bank charges interest on a fixed term but provides for a six months window of repayment deferral referred to as a repayment holiday, interest will, however, continue to accrue although it will be payable in subsequent, future repayments. Barclays bank does not charge any early repayment fees; thus, you can repay the loan as early as it can. The business is liable to incur different financial effects on the basis of the term of the loan you wish to undertake. Under the above mentioned business loan modules, you are afforded the opportunity to choose a suitable repayment regiment, which must also be agreeable with the bank. The banks’ decisions on repayment periods is based on your repayment ability and proof thatyou and by extension, the business is capable of footing the total monthly repayments based on the number of months chosen. In deciding which repayment period best suits you, we should assess your monthly income patterns and base the choice on your ability to put aside a certain amount which will be channeled to efficient loan repayments. It is important to, however, note that it is bound to face different financial effects if it chooses either one year or five years repayment terms. All the above mention banks entail fixed rates of interest; therefore, the total interest payable in a month is equitable all through the entire loan term. Repayments are calculated as a percentage of principal for one month (25,000 divided by the total number of months in the term) then added to a month’s worth of interest. Repaying the loan in one year will guarantee you will spend less on repayments than if the repayment period is set on a five year repayment plan. In addition, security fees are based on the loan repayment tenure; hence the shorter the repayment term the lower the security fee payable. A five year repayment term will result in payment of higher amounts of security fee compared to a one year plan which entails less security fee payment on any collateral provided. Repayments based on monthly, quarterly or biannual modules produce varying amounts. For instance, a one year loan repayment module on a biannual basis for a one year term will lead to you paying only two installments, thus will be cheaper compared to a biannual repayment plan for a five year repayment term. Ideally, the longer the loan repayment plan, the greater the financial impact on the business. A one year plan is viable as it is the minimum repayment period for a majority of banks hence there will not be any need for early repayment, which in some instances results in additional expenditure through fees and penalties. A five year term, on the other hand, would necessitate early payment should the business financial position permit wholesome settlement of the loan; this will result in payment of early repayment fees and penalties (Yescombe. 2002, p.62). While all these banks (HSBC, RBS and Barclays Bank) provide their own sets of advantages, the Barclays Bank provides the most viable option in seeking financial assistance of 25,000 pounds from a viable financial institution. Barclays Bank tailor makes finance to the needs of the clients; the bank’s disbursal procedure incorporates a one-off payment or disbursal in installments. This module is highly effective for your venture of developing a rebranded golf performance center as funds will be availed on a necessity basis which will encourage effective planning in every stage involved in such rebranding. In addition, Barclays Bank allows for flexible loan repayments schemes varying from monthly, quarterly and biannual. As seen earlier, biannual repayment schemes results in lower cumulative repayment amounts. It is paramount that you take advantage of the cheapest option of repayment to avoid unnecessary spending (Appleby. 1999, p. 32). When procuring financial assistance from a financial institution, various documents are required by the bank to ensure that the company is of sound economic and social standing. This is usually done in an effort to gain knowledge of the borrower’s background both in registration and finances. To begin with, we need to compile sets of original and copies of your identification documents as well as the business registration documents; this entails the certificates of business registration from the UK government and registration certificates from the golf club registrar’s office. These documents are essential in proving that both yourself and the company is indeed recognized by state and in its specialty field. Discrepancies in the registration documents such as typos in any detail on the certificate will result in the business’ dismissal from the prospective loaned list. We should provide original copies of registration documents as well as certified copies to the bank. Original documents are meant for confirmation purposes only, thus, are given back once verification is done. In addition, the bank will require that you submit a current utility bill and the business plan for which you will borrow the 25,000 pounds. Here, the bank looks at proposals for spending the funds lent. A financial plan is made through compilation of a business plan; the business plan will encompass prospective budgets, and how you intend to make the establishment of a rebranded golf performance center a complete success should the bank choose to advance the funds you applied for. A business plan provides the lender with a sound assessment system of the business’ solemnity in putting the finance to beneficial use; this will determine whether or not the business receives financing or not. There are various avenues, which offer guidance on how to draw an effective business plan or financial plan. For instance, there are experts who major in drawing up financial and business plans provided they receive adequate information. Moreover, you can easily create a business plan online (Roubini. 2001, p 98). In addition, banks require the provision of cash flow projection documents which show the your financial history and by extension assist in developing a hypothesis on your future financial position and that of the business. Cash flow documents include documents such as bank statements from your bankers. Different banks have a different range requirements for bank statements; some require up to six months’ statements while some go as far as requesting for five years worth of bank statements. It is essential to seek confirmation from the bank on the extent of bank statements they require. Bank statements provide lenders with information on the business’ capability of loan repayment and whether or not they are in the right financial position to receive a loan. Financial status shown through bank statements shows whether or not one is serious in their endeavors or one is just after increasing its cash in bank. Banks often require the provision of original banks statements although they permit issuance of copies certified by the respective banks. Another form of cash flow documents required is past financial tax returns. Banks often use such lists to determine the rates they will charge on loans. It is; therefore, paramount that you ensure you always ensure you fill out tax returns on time and observe the right protocols when doing so. You can use these reports to negotiate for better rates at the bank for the 25,000 pounds. A strong track record in repayment, which is shown through the returns, will determine whether or not the you will be able to access the financing required to facilitate establishment of a golf performance center (Schmidt 2004 p.56). Conclusion In conclusion, it is essential that you carefully weigh your options in deciding on which bank to borrow from, which type of loan to apply for, the term of loan repayment and model of repayment. If we go for banks that prohibit early repayment, we should insist on short repayment periods and models that permit monthly, quarterly or biannual based on the business’ financial position and ability to repay. It is paramount that we assess different bank backgrounds to determine which has the best track record in allowing loan rescheduling, where you can be permitted to skip an installment, however, the cost of such forfeiture should be within the yours and the business’ financial range. As finance is vital for business development, seeking the best option for finance is paramount. References HSBC. 2011, Business Banking: Terms and Conditions, HSBC, UK. Yescombe, ER 2002, Principles of Project Finance, Academic Press, London. Wolinski, J 2011, AQA AS Business Studies Student Unit Guide: Planning and Financing a Business:(Unit 1), Philip Allan Press, New York. Appleby, 1999, Modern Business Administration (6th ed.) Financial Times, Prentice Hall, BA Enterprises. 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