Question

Colleen Fernandez, president of Rhino Enterprises, applied for a $175,000 loan from First Federal Bank. The bank requested financial statements from Rhino Enterprises as a basis for granting the loan. Colleen has told her accountant to provide the bank with a balance sheet. Colleen has decided to omit the other financial statements because there was a net loss during the past year. 1. Is Colleen behaving in a professional manner by omitting some of the financial statements? 2. What types of information about a business would bankers want before extending a loan? (Note: Please do not just say "...would need all the financial statements." Be specific, name the financial statements and the information provided by each one.)

Answer 1

Answer 1. No Colleen is not behaving in professional manner by Omitting some financial information. As bank need all information (which is stated in Anser 2 below) regarding a business profits, csah flows and audited FS to grant loan. Most commercial loan include what we call loan covenants, in which the company agrees to keep some key ratios—quick ratio, current ratio, debt to equity, for example—within certain defined limits. If your financials fall below those specific levels in the future, then you are technically in default of the loan .

Answer 2. Type of information required by banks before extending loan is as follow:

• Collateral

• Commercial loan applications require a business plan document

• All of your business’s financial details including all current and past loans and debts incurred, all bank accounts, investment accounts, credit card accounts, and of course, supporting information including tax ID numbers, addresses, and complete contact information

• Account-by-account information (for checking their credit), and sales and payment history

• Complete FS ( BS , PL < CAsh flow) preferably audited or reviewed

• Banks want to see the corporate tax returns

• Future Projections.

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