Loans and mortgages: from different views (customer

and bank), responsabilityDOTT. STEFANO BLANCO

DOTT. MASSIMILIANO FONTANA

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Definition of LoanThe act of giving money, property or other material goods to anotherparty in exchange for future payment of the principal amount alongwith interest or other financial charges.

◦ Secured (i.e. morgages)

◦ Unsecured (i.e. credit cards)

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Interest rateInterest rates have a huge effect on loans.

Loans with high interest rates have higher monthly payments or take longer to pay off than loans with low interest rates.

◦ i.e. if a person borrows €5,000:

◦ with a 4.5% interest rate monthly payment of €93.22 for the next five years

◦ with a 9% interest rate monthly payment of €103.79 for the next five years

◦ i.e. if a person owes €10,000 on a credit card with :

◦ a 6% interest rate and pays €200 each month 58 months to pay off the balance

◦ a 20% interest rate, and pays €200 each month 108 months to pay off the balance.

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Why a company should need a loan?

«You have to spend money to make money»◦ Expansion

◦ Inventory

◦ Cash Flow

◦ Equipment

◦ To improve terms on a langer loan

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AMORTIZATION OF LOANS

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AMORTIZATION OF LOANS

The sum of capital part and interest part is called annuity or installment.

The payback is called immediate if starts immediately, otherwise it is said deferred.

Now let's see classical type of amortization

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AMORTIZATION OF LOANSProgressive amortization with same installments (French way of amortization)

◦ The installments are all the same, with worth R

◦ The debtor must pay an immediate constant annual deferred annuity

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t=0

t=n

0

t=1 t=2

R R R

OPENING A BANK CREDIT

"The opening of bank credit is a contract underwhich the bank agrees to make available to theother party a sum of money for a given period oftime or indefinitely."

"If it is not agreed otherwise, the accredited can usethe credit in more times, according to the forms ofuse, and can restore its availability with subsequentpayments . Unless otherwise agreed, withdrawalsand payments are carried out at the headquartersof the bank where it consists the relationship "

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OPENING A CREDIT VIA CURRENT ACCOUNT (C/C)

The opening of credit in c/c is a consensual contractwhereby the bank agrees to make available on a c/cof the client a sum of money for a given period oftime or indefinitely.

Effects:

Immediate: making available the sum from the bank;

Later: Any use according to the customer.This way of financing, together with the simple credit, if not guaranteed bydeposits or securities, is the only form of short-term loan that does not affect oris related to active assets

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OPENING A CREDIT VIA C/C

The opening of credit (apercredito) in c / c can be:

ordinary, where you set a credit limit within whichthe entrusted, without preconditioning, canwithdraw and restore the lower debt situations orthe c/c credit;

guaranteed, when the award is normally securedby a savings or securities deposit. The warranty inthese cases is given above all to obtain a lowestinterest rate level

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BANK CREDITBank credit approval is dependent upon a borrower’s credit rating and income or other factors such as assets, collateral or total existing debt obligations

Bank credit comes at a cost

Many businesses need business funding to pay startup costs, to pay for goods and services or supplement cash flow

The Central Credit Register is an information system on the debt of the customers of the banks and financial companies supervised by the Bank of Italy. In every country, a similar register exists

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CREDIT COMMITMENTSThey are the commitments made by the Bank on behalf ofclients that do not involve cash outlays, unless honored thepledge made by the customer.

Essentially consist of:

credit commitments by acceptance, when the Bank acceptsan excerpt issued by customers in his order;

credit commitments by warranty, where the Bank with theendorsement guarantees required promissory note;

surety loans, where the bank guarantees an obligation to"give", "do", not "do" that a customer has taken with athird. Signature loans are generated or as a substitute forfinancing transactions or to provide a customer's operation.

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THE BANK GUARANTEEAct by which the Bank, working directly towards thecreditor, guarantees the fulfillment of an obligation to do,not to do or give assumed by the customer.

The bank guarantee is given with a letter of guarantee.

The warranty is given:◦ to obtain advances on future supplies;◦ in procurement, especially international ones in place of

cash collateral or securities;◦ to provide buyers with certain characteristics of products

sold;◦ to free goods in the absence of documents;◦ to fund the client on the market (commercial paper).

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THE BANK GUARANTEE ININTERNATIONAL TENDERS

International auctions usually provide for guarantees applywith reference to the stage of the contract.◦ The bid bond, with which the bank guarantees that the offer

made at the auction session will not be withdrawn.◦ The performance bond to ensure the proper performance of the

work, normally higher than before, guarantees that the companywill carry out the work according to the quality provided for in thecontract.

◦ The advance payment bond, issued when they granted advancesin relations to States of play, ensuring that in the event ofinterruption of work the bank guarantees refund of amounts paidin advance.

◦ The retention money guarantee, for unlock any amounts that thecontract should be immobilized to ensure their existence.

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MORTGAGE CONTRACTThe mortgage contract is the one bywhich a real right in immovableproperty or movable warrantyregistered, which is constituted by entryin public registers.

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LEASING

Leasing includes contracts characterizedby the transfer in lease to anothercompany for a period of time, of one ormore movable or immovable property,subject to payment of a specified fee.

Leasing can be expected to pay theopportunity to redeem the goods onpayment of a sum agreed. Leasing isdistinguished in:

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LEASING

operating lease, normally for a period of timeless than the physical life of the asset, an assetalready in the availability of the lessee andstandardized and broad-market type;

Financial lease, characterized by coincidenceof the physical life of the asset with theduration of the lease and by non-existence ofthe right in the availability of the lessee

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LEASINGIn financial leasing fees basically pay the depreciation of theasset and the profit of the lessor. In both cases there is nofinancing of goods but the lease. The risks of obsolescenceand asset management expenses in operating leases arecharged to the lessor; While in financial leasing are borne bythe lessee

In an operating lease the lease cost for the period of stayfor good at the individual lessee not necessarily pays backthe cost of the asset. In a finance lease the sum of the feesexceeds the cost of the asset. In an operating lease theasset is standardized and market (cars, computers, printer,photocopier, etc.), in financial leasing, however, normally,the well is individualized in relation to the company(machine in production line).

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REAL ESTATE LEASE–BACKDefinition: purchase of business properties from other industrialcompanies through financing and bank loans that are made by othercompanies which together leased the same goods to the same recedeoperating companies.

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