Lending Money And Others (Banking) In Commerce
LENDING MONEY – Banks are financial intermediaries. They accept funds for safe keeping and lend some of them to those in need of cash.
Those borrowing money have to pay a higher rate of interest than that paid to the savers. Not all of the banks’ deposits are lent out. Some must be kept liquid in bank tills to meet the daily demand for cash by customers; some is in near liquid form as treasury bills or in accounts in the Central Bank to ensure that the banks have ready access to funds to meet any marked increase in with drawals.
Banks provide loans or credit for their customers in the following ways;
Overdraft A bank may allow a person’s current account to go ‘into the red’, to show a negative balance. Cheques may be drawn to an agreed amount allowing the customer to meet financial commitments despite an inadequate current account balance. It is more usual for firms to be granted an overdraft for a specified period when income from sales falls short of expenses to be met.
Banks charge interest on the debit balance which is reduced as soon as payments are made into the account.
Loan – This is a longer-term borrowing arrangement. It allows
private and business customers to purchase relatively expensive
Items such as cars and machinery.
An agreed sum of money will be credited to the customer’s current account. It can then purchase the item in question. The debt is re-payed by the regular transfer of money by a standing order from the regular transfer of money by a standing order from the customer’s current account to a special loan account until the loan and interest are repaid.
When the banks lend out their depositors money they ensure that borrowers will be able to repay loans and overdrafts plus the interest charge. Borrowers ought to meet these requirements;
1. They must be trustworthy and reliable
2. They must explain how the loan will be spent
3. They must convince the bank of their ability to repay. A private customer must have a secure job and reasonable income. A business must have a good future.
4. They must provide any necessary security or collateral. A bank may require the borrower to deposit with them some asset such as share certificates or deeds to property, which the bank could sell should the borrower fail to repay the loan.
Credit cards issued by some banks enable people to obtain goods on credit. A card holder receives a credit limit based on his or her income; goods to the value of this limit may be bought. Retailers record details of each transaction and the card number; they then receive payment from the bank. A card holder is sent a bill from the bank for the previous month’s credit-card purchases. It can be paid either by cheque or by monthly installments, in which case the bank will charge interest.
Services in international trade
Financial help – Documentary credit ensures that an exporter receives payment for his goods by his bank as soon as it gets the invoice and shipping documents. The bank then claims on the importer’s bank abroad. Acceptance credit is similar and allows the importer a period of time to settle his bill.
Advice on trading – Nigeria has banks with branches abroad and foreign banks based in the country. They can offer advice and information on trading conditions abroad, foreign import and export regulations and other matters.
Foreign exchange dealing – Banks will obtain the necessary foreign currencies required by importers and also by businessmen and private travellers.
Other banking services – Banks will assist private individuals on tax, insurance and investment matters.
As executors and trustees they can help prepare and implement wills.
Safe custody can be provided for valuables such as jewellery and documents such as share certificates and property deeds.
Businesses can receive financial advice which can be especially helpful for small firms and farms.