International Banking Laws - Essay Example

Winter Ltd is a company which sells books on the internet and is now willing to expand its business by selling CDs & DVDs, but for this purpose it needs capital and now has approached Spring Bank for a loan of 2 Million. For Spring Bank, just like all other banks, it is an opportunity to grasp and at the same time, it has to be very careful about the collaterals and security offered by Winter Ltd. as to repayment of the loan because every loan has an inherent risk of default. In the case of intangible assets, the risk involved might be of some other nature as compared to loans which are secured against some physical asset.

To avoid any risk Spring Bank would have to be very careful of all the circumstances and financial condition of Winter Ltd. before extending a loan facility to them. It would be appropriate that before deciding as to loan for Winter Ltd, we must consider the types of loan which can be offered to them by the bank. There are commonly two major types of loans that are being offered to commercial entities to support their business and the same can be considered in the case of Winter Ltd, too.

These are Overdraft Facility or Term Loan. Overdraft is an arrangement between the client and its bank in which a continuous flow of cash is guaranteed in a bank account; the bank agrees to provide a facility of loan to an agreed limit. In such a case this overdraft facility might be one-time relaxation or maybe a permanent feature of account operation with the client. In such cases, this overdraft may be created and paid off continuously. Customers' credit cards are also useful links for their creditworthiness.

2 This facility, however, is not flawless and involves risk on part of the bank mainly. Bank is providing this facility based on the client’s reputation and is without any collateral which means it is an unsecured loan and hence invites a lot of caution on part of the bank to allow