Question

Question 3 10 marks Barton Company requested a large loan from First National bank to acquire a large piece of land for future expansion. Bart reported current assets of R1,900,000 (R430 000 in cash) and current liabilities of R1,075,000. FNB denied the request for a number of reasons. When the Company received the news, the financial controller immediately paid R420 000 that was owed to several trade creditors. He then asked the bank to reconsider the loan application. Based on the abbreviated facts would you advise FNB to advance the loan? Why? Are the actions of the financial controller ethical? 1) What could be the reasons for the denial of the request for a loan? (2) 2. After the actions of the controller what would be your advice for FNB and why (7) 3. Are the actions of the financial controller ethical? (1) NB: limit your answer for all 3 sub-questions to 500 words or less.

Answer 1

Solution

1.  Two primary factors lead lenders to deny loan applications: problems with credit and problems with income.

Your credit history and credit scores are primary factors lenders consider when you submit a loan application. If lenders see any significant negative items on your credit report or other red flags, they may determine that as a borrower, you're too risky to approve at this time.

In the present case it seems FNB denied the loan due to overdue of payment to trade creditor

2. After the payment to trade creditors my advice to FNB would be the reconsider the loan application of Barton company due the increase in the credit score of the company. I would advise to bank to be highly skeptical and check the funds with which the creditors were pais and the reason for not paying them earlier.

3. the actions of financial controller are ethical