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Credit Management Process (Credit Evaluation (A- Ability to manage cust.…
Credit Management Process
Sole Proprietors
Individual
Capital Structure:
Unlimited liability
May not have sufficient personal /biz resources to repay bank loan
Management Capabilities:
Jack of all trades, master of none (may encounter difficulties)
Biz grows, owner may overworked
Profitability:
Potential for biz to suffer loss during proprietor's absence
Partnerships
Capital Structure
: Unlimited liability
New partner not liable for existing debts
Partner not liable for debts after having stopped being a member
Management:
More partners could give rise to dangers of DISAGREEMENT/ SLOW decision making
Profitability
: Will suffer if a KEY partner resigns & brings the pool of clientele w/ him
Companies
Separate legal entity
Capital Structure:
Limited Liability
Management:
Board of directors to run the company
Profitability:
Greater degree of regulation (Comply w/ requirements; needs to have accounts audited) - Higher cost may affect profit
Limited Liability Partnership (LLP)
Separate legal entity
Entity has to be registered w/ ACRA, min 2 partners
Capital Structure:
Limited liability
Liability protection; limited only to liabilities arising out of malpractice committed by other partners
will not be protected if committed by himself
Allows for transfer of right to economic interest
Management & Profitability:
Similar to PARTNERSHIP (governed by partnership agreement)
Credit Evaluation
A- Ability to manage cust. biz
M- Means of the customer
P- Purpose of the proposition
A- Amount of the proposition
R- Repayment of the proposition
I- Insurance(security) given to BANK
P- Profitability of Bank lending
C- Character of customer
Declining a loan application
Consequences:
Bring biz elsewhere
Bank should be TACTFUL
1) Explain reason for refusal 2) Identify corrective action
Show both flexibility & tact