Read the following scenario and answer the questions that follow: Scenario:
John is a small business owner who wants to expand his operations by purchasing new equipment for his manufacturing company. He approached a bank to apply for a loan to finance the equipment purchase.
4.1 The loan officer at the bank evaluated John's creditworthiness based on the 7 C's but experienced technical difficulties and mixed the findings of four of the 7 C's. Assist the loan officer by reading the following findings and indicate which C is displayed.
4.1.1 John has been in business for over a decade and has built a good reputation in the industry.
4.1.2 John demonstrates that his business generates sufficient cash flow to cover the loan payments while maintaining adequate liquidity for day-to-day operations.
4.1.3 John has invested a significant amount of his own capital into the business and also provides documentation of his personal and business assets if needed.
4.1.4 John's credit score is in good standing, indicating a low risk of default on the loan.
(4 x 1 = 4)
4.2 After assisting the loan officer, you realise that John has to consider various factors when choosing a loan to finance his expansion. Elaborate on the following factors by conducting research on the internet of what the top five financial institutions in South Africa are offering. Include proof of all consulted sources. Remember to link this back to the scenario.
4.2.1 Costs associated with a specific source.
4.2.2 Matching the life expectancy of assets and credit time available
Provide references
4.1 Findings based on the 7 C's:
4.1.1 Character - John's good reputation in the industry
4.1.2 Capacity - John's ability to generate sufficient cash flow
4.1.3 Capital - John's significant investment into the business
4.1.4 Credit - John's good credit score
4.2 Factors to consider when choosing a loan:
4.2.1 Costs associated with a specific source: In South Africa, the top financial institutions such as Standard Bank, Absa, Nedbank, FNB, and Capitec offer a range of loan products with varying costs such as interest rates, fees, and repayment terms. When choosing a loan, John should compare these costs to determine which option is the most affordable and sustainable for his business. (Consulted sources: standardbank.co.za, absa.co.za, nedbank.co.za, fnb.co.za, capitecbank.co.za)
4.2.2 Matching the life expectancy of assets and credit time available: John should consider the term of the loan and match it with the life expectancy of the equipment he is purchasing. For example, if the equipment has a lifespan of 10 years, he should look for a loan with a term that aligns with this timeframe to ensure that he can comfortably repay the loan while benefiting from the equipment's use. (Consulted source: investopedia.com)
References:
- https://www.standardbank.co.za
- https://www.absa.co.za
- https://www.nedbank.co.za
- https://www.fnb.co.za
- https://www.capitecbank.co.za
- https://www.investopedia.com