Lending Products Flashcards Preview

LIBF - Certificate in Business Banking and Conduct > Lending Products > Flashcards

Flashcards in Lending Products Deck (14)
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1
Q

Name some most common lending products

A
Overdrafts
Factoring and invoice discounting 
Loans
Asset finance 
Credit and charge cards
2
Q

What 3 categories do lending products fall into

A

Providing short term liquidity for cash flow
Financing the purchase of assets
Covering contingent liabilities

3
Q

When could a cashflow problem inccur

A

When money has to be paid out before payments owed are received

4
Q

What is hardcore debt

A

If a bank account doesn’t return from debit to credit during the period of a month

5
Q

Advantages of an overdraft

A

Borrowers only.pay interest when overdrawn
Bank can review and adjust the level of the overdraft facility
Facility is quick and easy to obtain

6
Q

Disadvantages of an overdraft

A

Overdrafts do not provide a discipline in terms of repayment
Business can become reliant on overdrafts
Overdraft funding is provided on demand which means the bank can remove the facility at any time
Overdrafts may mask difficulties the business is experiencing

7
Q

Two forms.of sales financing

A

Factoring

Invoice discounting

8
Q

What is debt factoring

A

A business selling its invoices (money that is owed to it) to a factoring company

9
Q

What is recourse factoring

A

With recourse factoring the factor does not assume the risk of bad debtors. They will reclaim their money from the business if the customer doesn’t pay

10
Q

Wwhats non recourse factoring

A

With non recourse factoring the factor takes on the bad debt risk. The factor could take legal action against the customer for payment

11
Q

Advantages of factoring/ invoice discounting

A

Ideal way to fund rapid growth in sales
Improve cashflow
Help to smooth cashflow and assist with financial planning
Useful info about the credit standing of customers can be obtained
Protection from bad debts with non recourse

12
Q

What is invoice discounting

A

The diiscounter will first check the business its systems and customers. It will review the credit history and profit track record of the business. The discounter will then agree to advance a % of the total approved sales ledger

13
Q

Disadvantage of factoring/ discounting

A

Cost involved can mean reduced profits
May reduce scope of traditional borrowing
It’s not suitable for some businesses/ sectors
Providers will want to vet customers

14
Q

What is short medium and long term for loans

A

Short < 1 year
Medium 1 - 7 years
Long > 7 years