No..... APPLICATION FOR LOAN TO THE CITIZENS TRUST & SAVINGS BANK, COLUMBUS, OHIO. I hereby make application for a loan of $ I agree to pay at the office of the Bank or any of its branches, monthly installments in the on or before the 15th day of each month, with interest at sum of $..... the rate of % per annum, payable semi-annually. I agree to furnish an abstract of title to date showing unencumbered title in present owner, and insure said property for $...... and to pay all expenses in making the loan, and interest, and to pay promptly as they become due for payment, all taxes and assessments that may be lawfully, assessed against said property. I agree to give a first mortgage on the following described real estate, and in consideration of the granting of the loan, I certify that the following answers are true and correct: APPLYING FOR LOANS 159 tionship with the banker, who to that extent becomes as a partner. No facts affecting credit should be withheld. Some banks are satisfied with oral statements, but it is a growing practice to demand a written statement of the borrower's financial condition (see 111-121). All money brokers require the written statement (see 131). I hereby certify that I have examined the abstract of title of the within described real estate and 6nd the title to be good The reverse of the application for a loan on real estate which is shown on the preceding page. A decision as to the loan may be rendered at the first conversation; again a loan committee, or the directors, may have to pass on the loan. It depends on the size of the loan and what is already known as to the risk. The bank may have all the credit information it wishes: it may want time to get more. Every bank wants its own forms used; it knows what these mean. In a small bank the cashier or the treasurer initials the paper and the teller pays out the money, or credits it as a deposit. In a large bank after approval it goes to the discount clerk, and then to the customer. The paying teller will then give cash for it, or the receiving teller will accept it as a deposit for cash credit. In other banks the discount teller makes out the deposit slip. It is not customary for a bank to give a receipt for deposited collateral. That has been absolutely surrendered by the terms of the note. 123. A borrowing account.-A depositor can easily establish his credit at a bank before he needs to borrow. It is desirable that he make known his financial condition so that his banker knows him well enough to pass quickly and intelligently upon a request for a loan. Reliable mercantile and manufacturing concerns negotiate for and get a line of credit, that is, an agreement to discount bills and notes growing out of commercial transactions, up to a certain amount. Such loans are not used for permanent assets. If the loans are for a seasonal business the bank expects a " clean up " during part of the year. During the rush season loans are large and are gradually reduced to nothing. A year-round business may always be in debt, but the loans must be kept liquid. The borrower agrees to maintain an average balance to his credit amounting to 10% to 20% of the amount due the bank. In New York City the latter percentage is required. This requirement may work as an increase in the interest rate, but in most cases the balance required is about what the business ought to keep on hand, and about what is necessary to compensate the bank for its free services. It is by establishing borrowing accounts that the deposits 1 Humphrey Robinson, Modern Banking Customs, p. 86. (Small, Maynard and Co., Boston, 1910.) BANK'S KNOWLEDGE OF BORROWER 161 of a commercial bank grow. A mass of deposits grows out of loans. Deposits arise in three ways: (1) Money is deposited and credited to the depositor's account. (2) Checks and other cash items are credited to the depositor's account. (3) The proceeds of notes and bills discounted are placed to the credit of the depositor. When a loan is made and credited the borrower is free to check out as long as he observes the minimum-deposit rule. A large part of the deposits of a commercial bank were first loans and many of the houses having balances owe the bank five to ten times as much. In a 124. The bank's knowledge of the borrower. small town the banker keeps his eyes and ears open, watches the coming and going of checks and drafts, makes direct and indirect inquiry, and comes very near knowing all there is to be known of the investment and employment of funds, character of all the assets and liabilities, contingent liabilities, amount and cost of business done, growth and profits, extent of outside interests and speculations, methods of handling obligations and contracts, promptness in paying debts, standing with the trade and employers and the community, personal habits, associations, and intimate friends of the borrower; in fact, everything that may affect his capacity and determination to repay a loan. The banker's credit department is in his head. He personally knows the values of all sorts of property. As the bank grows and the town grows he must supplement his knowledge by written reports carefully filed. A large city bank has a well-organized credit department. What the borrower tells orally, or in writing (see chapter 10), is supplemented by reports from credit agencies, mercantile houses, and other banks, as to his success, his promptness of payment, his net worth, and the amount of credit it is safe to grant. Records are obtainable of the values of all securities that may be pledged, and experts in appraising land and improvements are available to check what the borrower says. The customer's account tells, or helps to check, certain important matters. Have there been overdrafts? Are checks ever returned and for what cause? Does the balance keep a proper proportion to loans and is it enough to compensate for free services? Is there enough, or too much, working cash? What are the minimum, average, and maximum loans a year? Are notes and drafts paid promptly? Is business growing? Does this account alone represent the business, or are there other bank accounts? What use is made of loans and other funds? Does the borrowing indicate weakness, or strength? 125. Making paper eligible for rediscount. - Now that the Federal reserve banks will rediscount commercial paper for member banks (all national and some state banks) dollar for dollar if it is indorsed by the member banks and meets requirements, every borrower who can do so wants his paper to fall into the rediscount class, because he will then usually be able to secure loans. The principal requirements besides security are the purpose for which the proceeds are used and the duration of the paper.2 It is helpful to attach to the note, or bill, a memorandum stating the transaction out of which the paper grew. The farmer's loan to be eligible for rediscount must mature within nine months and the proceeds must be used or have been used for seasonal agricultural purposes which may include the breeding, raising, fattening, or marketing of live stock.2 In the case of cooperative marketing associations the proceeds may be used for grading, processing, packing, preparing for market, or marketing any agricultural products handled for its members. The Federal Reserve Board has ruled that notes and bills 2 Federal Reserve Board, Regulation A, Series of 1922. |