This PDF FILE is a selection from a great out-of-print volume level from the Nationwide Bureau of Economic Research
Volume Name: Term Financing to Organization
Volume Author/Editor: Neil They would. Jacoby and Raymond M. Saulnier Quantity Publisher: NBER
Volume ISBN: 0-870-14129-5
Volume URL: http://www.nber.org/books/jaco42-1
Publication Time: 1942
Chapter Title: Methods and Methods of Term Lending
Section Author: Neil H. Jacoby, Raymond M. Saulnier
Phase URL: http://www.nber.org/chapters/c5754
Chapter web pages in book: (p. 73 - 101)
Practices and Techniques of Term
SINCE THE REPAYMENT of zero loan is absolutely certain, pri-
vate credit rating institutions are unable to avoid measuring the risks of lending, neither can they avoid adopting an insurance policy regarding the
quantity of risk they are willing to assume. As a practical matter, this involves, 1st, the adoption of credit rating standards by reference to which applications intended for loans may be tested, and second, the usage of credit evaluation methods to be able to determine if requests for loans satisfy these standards. 1 Commercial banks, insurance coverage companies, and public
firms extending medium-term credit to business issues
have steadily developed specially trained personnel and
exclusive credit criteria, along with methods of assessing
and restricting term loan risks. The factors that determine the probability of repayment of the term bank loan differ markedly from these pertaining to a personal loan, a residential mortgage or other forms of credit. Moreover, the top size of individual term financial loans means that loan providers cannot rely upon diversification to the considerable extent to limit their risks, but need to attempt to make up for this by care with which they
scrutinize each loan application.
Organization and Personnel
Very few commercial banking institutions have build separate departments or sections charged with the functions of
making and controlling almost all term loans originating in your bank. 2 It may also entail the provision of reserves, reserve out of income from
loans, against which " normal" deficits may be incurred.
Between a large number of financial institutions located in leading financial centers east in the Mississippi Riv, whose officers were evaluated by the copy writers, only one experienced concentrated most term lending functions in a separate section.
Term Lending to Business
A number of banks have estimated this form of organization simply by placing a mature officer responsible for all term credits,
while using duty of supervising and passing after term financial loans
originating with other officers. Nevertheless the majority of American
banks that are large enough to obtain developed a purpose for
field of expertise of their business loan functions include divided their particular territories in to geographical areas, one of which is
assigned to each loan officer. A few large banks plan
their loans on an industrial basis, or perhaps combine an industrial having a geographical foundation organization. Whatsoever method of corporation is used, it really is generally accurate that applicants for term loans and seasonal financial loans will manage the
same loan official. In short, banking companies have preferred to adapt
their existing organizations to term financing rather than to
create new divisions.
This kind of fact does not indicate that bank canal fail to
understand any attribute in the credit problems posed by term financial loans. Many organizations have created particular statistical or re-
search departments to get the evaluation of applications for term loans. It is important that sometimes these credit analyses will be assigned to the analytical products connected with the bond or perhaps
trust departments of the bank, rather than for the regular
credit rating department. three or more This is evidence of a reputation that term loans ought to be judged simply by standards and analyzed by methods
appropriate to opportunities rather than to short-term financial loans.
As can be inferred from your general a shortage of special
corporation for term lending by simply commercial banking institutions, the workers engaged...
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