Demonstrate major steps required in broking or writing a moderately complex loan for a customer

Assignment 1. Overview

The purpose of this task is to allow you to demonstrate that you can complete the major steps required in broking or writing a moderately complex loan for a customer – through identification, development and implementation of loan options while assessing and managing risks. The samples provided online in Appendix a) and b) will prove helpful. Remember that what you prepare would, in the real world, need to be presented to the client orally and thus must be understood by them.

INSTRUCTIONS 

Read the scenario provided and using the information and data supplied, prepare a formal loan submission for a lender using the following headings. Use subheadings where appropriate to ensure your submission will be easily read and understood by the lender. 

The client file should contain the standard client information and data that would be included in a typical submission for a loan of this complexity. Your lender submission should include as a minimum the following headings: 

1. Borrower’s Details 

2. Background 

3. Loan Purpose 

4. Facility Details 

5. Funds Position 

6. Servicing Capacity 

7. Security 

8. Risk Assessment and Management (according to lender policy, guidelines and relevant legislation). Consideration must be given to any environmental, heritage or native title implications 

9. Recommendations 

10. List of Attachments

SCENARIO 

Angus Bollard has been a real estate agent for over 20 years and jointly with his wife Janice own 6 shops at 55 Park Road, Belmont. Mr and Mrs Bollard own the shopping centre under the Bollard Family Trust. The property was recently valued at $1,450,000 and has a current ZZZ Bank mortgage of $575,000. 

Five of the shops are rented out for $96,000. The sixth shop is occupied by Mr Bollard’s real estate business, Bollards Real Estate Pty Ltd, which pays annual rental of $42,000 to the Family Trust. 

Bollards Real Estate Pty Ltd was formed at the beginning of the last financial year to take over the real estate agency business, which was previously conducted by a partnership between Mr Bollard and James Hopper. Bollards Real Estate Pty Ltd took over the business when Mr Hopper retired; Angus Bollard is the sole director of Bollards Real Estate Pty Ltd. 

Mr and Mrs Bollard now wish to acquire 3,000m2 of land near their existing shopping centre and hold it for 1 – 2 years pending rezoning. The purchase price is $550,000. The land was previously used as a State Government Health and Dental Centre, but the building was demolished when it became obsolete. The land is currently zoned ‘Special Purpose’, but the local council earmarked the land for future ‘Commercial’ use in its recently released Town Planning Scheme. The land is located at 423 Belmont Road, Belmont and has a two-street frontage with considerable passing traffic. 

The Bollards have contracted to purchase the property in their capacity as trustees of their Family Trust and settlement is due with 60 days. They wish to raise 100% of the purchase price plus $25,000 for stamp duty, financing and conveyancing costs. They are willing to offer both the land and their existing shopping centre as security for the proposed loan. They will contribute a further $20,000 over the next 1-2 years to cover the costs associated with re zoning of the property and obtaining approval to develop another shopping centre. 

ZZZ Bank policy does not allow lending against land zoned ‘Special Purpose’ and cannot assist with the purchase. The Bollards have appointed you to approach an alternative lender to refinance their ZZZ Bank loan and obtain the additional funds required.

Applicant’s Information 

Assume an interest rate of 5% for a commercial loan, 7% for an overdraft. 

Angus Mark Bollard – DOB 29/07 1975 DL # 2945758 

Janice Elizabeth Bollard – DOB 15/06 1977 DL # 2786454 

Married with three adult children (one working in the real estate business) Address: 12 Currumbin Close, Carindale QLD 4152 

Accountant – Ainslie and Partners Telephone - 07 3349 9999 

Work History

Angus has been a real estate agent for 22 years in the Brisbane South East area, he specialises in commercial and industrial property (rent roll comprises 75% commercial and industrial properties). His gross salary last financial year was $78,000. In the previous financial year, he drew $55,000 from the partnership with James Hopper.

Janice has worked as the property manager since Bollards Real Estate Pty Ltd took over the agency after the partnership. Her gross salary last financial year was $43,000. She did not work in the previous financial year. 

Assignment 2. LOAN SUBMISSION for EQUIPMENT FINANCE

INSTRUCTIONS

The assessment for this module is to prepare TWO submissions (see A and B below):

Task A: The first submission is for the client so that they have the facts on all their obligations and fees and the structure of the loan. Remember that what you prepare would, in the real world, need to be presented to the client orally and thus must be understood by them.

Task B: The second submission is for the lender – a detailed outline of the loan application for the lender, in order to gain pre-approval.

PART A – THE CLIENT

1. Prepare a list of questions that you would need to ask your clients about the proposed transaction, that is, prepare your needs analysis (ie. Fact Find).
2. In a suitable format, prepare a submission for the clients ie. a Proposal document.

What your client submission should include:
1. The parties to the loan
2. The security
3. The facility details
4. Lender details (options, recommendations) that are able to lend
5. Confirmation of the client’s complex requirements
6. The personnel that may be involved: eg. the client's solicitor, accountant, financial advisor
7. The client’s responsibilities, so the client fully understands the loan
8. An outline as to the process timing and what the client needs to arrange
9. The documentation needed to commence the borrowing
10. The name in which the client will sign the contract to purchase
11. A summary of all fees and charges
12. Your notes detailing how you have provided appropriate contact with the client throughout the complex broking process

PART B – THE LENDER

Prepare a loan submission to the lender for pre-approval. Your submission should include as a minimum the following headings:
1. Borrower’s Details
2. Background
3. Loan Purpose
4. Facility Details
5. Funds Position
6. Servicing Capacity
7. Security
8. Risk Assessment and Management (according to lender policy, guidelines and relevant legislation). Consideration must be given to any environmental, heritage or native title implications
9. Recommendations
10. List of Attachments*

EVIDENCE REQUIREMENTS

In order to be deemed competent, you will need to evidence the ability to:

• Identify client goals, objectives, requirements and assess special financial needs of the client situation
• Identify risk issues and risk tolerance and discuss risk management strategies
• Model, analyse and prioritise suitable options for client, and reject inappropriate options
• Develop explanatory material for client
• Interpret and comply with industry legislation, regulations and codes of practice affecting the broking industry
• Identify and address issues that require further consideration or consultation with other financial services professionals
• Confirm client understands credit options and identify and respond to client concerns
• Obtain agreement to proceed from clients
• Review impacts of asset, income or expenditure requirements, taxation, complex nature of and forms of securities, and other legal or complex requirements
• Establish and prioritise implementation actions, timing and activities according to client needs and situation and explain implementation actions required by the client
• Issue instructions to required personnel as per loan structure

SCENARIO 

1. Commercial Equipment Finance for Ron Hammond and Sean Mandeep 

• The clients you met with this morning have been referred to you by another commercial client. 
• They are joint company owners Ron Hammond and Sean Mandeep and they run a successful and growing transport company. They have a diverse client base spread over many industry sectors which is a conscious management strategy to ensure that they do not have significant business risk to a specific market segment or client. All contracts are written with 30-day payment terms. Background industry checks as well as credit history checks are completed on all new business prospects to ensure that there are no adverse issues that may impact on future trading arrangements. 
• Whilst they have only been trading for 34 months they have a solid business plan with actual results to date exceeding projected sales and profit estimates included in their plan. 
• The business was established with unsecured (apart from Personal Guarantees) Seed Capital of $500k from a private investor based on a guaranteed return of $45k pa, and an overall term of 5 years which also requires a principal reduction of $100k pa. The loan can be repaid at any time without penalty. 

2. Ron and Sean’s Requirements 

• To accommodate new contracts in hand and planned future expansion, the applicants require establishment of an Equipment Finance Limit of $470k to purchase Trucks and Dog Trailers in the next 12 months. On the advice of their accountant, a new entity, Hamdeep Holdings Pty Ltd ATF The Hamdeep Discretionary Trust, has been established to purchase equipment which will be internally hired to Hamdeep Transport Pty Ltd (the trading entity). Hire charges will equate to finance payments. Ron and Sean are directors of both companies. The longer-term intention is for the Trust to acquire premises to be occupied by Hamdeep Transport Pty Ltd. 
• As part of this expansion the company has leased a second depot at a cost of $6,000pm and will also retain the existing depot. 
• They currently have 5 employees and where needed are using sub-contract operators to fill shortfall in their delivery capacity. Purchase of new additional trucks and trailers will provide additional capacity and flexibility and reduce reliance on sub-contractors who can be unreliable. 
• Whilst a limit is being sought, purchases will only proceed where additional work has been contracted or older equipment is being replaced. Applicants are happy to provide half yearly management accounts as an approval covenant to give a lender comfort that projected sales and profits are in line with budgets. 
• Applicants are keen to reduce debt as quickly as possible and have therefore decided to finance all new equipment over a 48-month term, without a balloon/residual and will commit a refund of GST Input Credits as additional repayments built into the contracted loan structure.

Initial Fact Find 

Ron and Sean have both been in the transport industry for many years each being Financial Controllers for major transport companies. Ron has an MBA and Sean a marketing degree. These combined skills complement each other and assist in the effective management of the business. Ron is married and has no dependants. His wife is a school teacher and she will be retiring at the end of the year. 

Sean is single and is presently completing a HR degree as they feel that as the business grows these skills will be required. 

Ron and Sean have provided the last two year’s financial accounts for the trading business, as well as interim accounts for the current financial year. 

(Note: You need to calculate the required servicing for the new debt and surplus required for lender comfort. Assume an interest rate of 8% for the proposed debt) 

Financial accounts 

• Year 1- Sales $700k Net Profit $240,000 
• Year 2- Sales $812k Net Profit $358,000 
• Current year interim financials (10 months) - Sales $1.125m Net Profit $506,000 (10 months); Operating Costs include – Depreciation $76,000, Interest $42,000, Sub-contractors $71,000, Directors’ Superannuation $50,000 
• Wages to partner one $100,000 
• Wages to partner two $100,000 
• Payment to private investor (flat fee) $45,000- Expensed in P&L as Finance Cost 
• Existing Equipment Finance (Chattel Mortgages) repayments of $5,000pm

Applicant Information

• Ron Hammond annual income $100,000 (paid as wages), owner occupied property $850,000 with debt of $250,000 (assume 5.2% P&I), credit card limit $25,000 (with debt of $15,000, assume at 3.8%pm), contents $100,000, superannuation $550,000, motor vehicle $40,000 with nil debt.
• Sean Mandeep – annual income $100,000 (paid as wages), owner occupied property $500,000 with debt of $350,000 (assume 5.2% P&I), credit card limit $10,000 (with debt of $3,000, assume at 3.8%pm), contents $85,000, superannuation $150,000, motor vehicle $25,000 with debt of $15,000 (assume five-year debt at 7%).
• Cash in business account $25,000.

Key Balance Sheet Items

Debtor collection has been solid with active management of debtors and pre-contract investigation of new clients. They have just signed a delivery contract with Organic Flower Growers who supply to Woolworths Supermarkets state-wide. To accommodate this work, their initial purchase will be a refrigerated Pantec truck at a cost of $145,000. Projected net profit from this contract is $60k pa.

Assignment 3. THEORY ASSESSMENT

When responding to the following questions you are to describe the processes and resources used as it may apply to a specific situation. Please provide evidence of any templates, organisational material or technology used and/or provided to the client in each situation, if applicable.

Question 1. Describe how you gather the information required to establish a client’s special financial circumstances? 

•  In answering this question, you should refer to: 
•  Explanation of the services provided to the client 
•  Listening and questioning techniques you employ 
•  Your use of language appropriate to any cultural differences
•  Your interpersonal skills and how you would deal with any emotive issues sensitively 
•  Your ability to build/establish rapport 
•  Your professionalism 
•  Your communication skills 
•  Your provision of appropriate contact with client throughout the complex broking process

Question 2. Describe how you record and document your interaction with clients? 

In answering this question, you must refer to: 

•  Templates used to gather information in initial interview
•  Diarising or recording telephone conversations 
•  Procedures that are established for critical implementation, timing and priorities 
•  The documentation gathered 
•  Any technology used to record or gather information. 
•  How you access and use appropriate specialist software, organisational templates, spreadsheets and databases 
•  How your recommendations and loan structures, as presented to clients, are documented according to organisation guidelines and procedures

Question 3. Describe how you research and identify complex credit options based on the clients’ special financial circumstances? 

In answering this question, you must refer to: 

•  How special or complex features of a client's situation and objectives are discussed, reviewed and clarified 
•  The analysis of the client situation to determine opportunities and constraints 
•  Research into loan structures or options including those which are new or non-standard 
•  Consideration of financial issues in terms of economic, legislation, taxation, legal, insurance 
•  In what conditions would the broker need to refer clients to a specialist advisor (eg. financial advisor or accountant) 
•  How possible loan structure or options are analysed, modelled, prioritised and measured 
•  The process used to reject inappropriate options including checks to ensure compliance with relevant Acts 
•  Assessment of options to successfully achieve the client’s objectives ? How you liaise with others, share information, listen and understand.

Question 4. Describe and/or provide evidence of how you identify, assess and manage risk when dealing with clients with complex loan requirements? 

In answering this question, you must consider: 

•  Risk evaluation criteria eg. undertaking risk categorisation and determining the level of risk 
•  Risk assessment tools (eg. valuation practices) 
•  Communication of the aspects of the valuation result/s to clients ? Discussion on the issues around an adverse valuation 
•  Establishment of the probability of risk including the severity and/or impact 
•  Identification of stakeholders and how throughout the loan process o you seek their views 
  •  provide pertinent risk information – clearly describe risks 
  •  recommend amendments to existing controls and report any need for new controls 
•  How would you as a professional in the industry ensure that you comply with industry and government requirements and professional codes of practice? 
•  How would you read and interpret organisational and industry information?

Question 5. Prior to presenting the loan options to the client did you identify any concerns that the client may raise? What preparation was completed to respond to these concerns? 

Consider: 

•  Research/documentation materials 
•  Alternative recommendations 
•  Regulatory limits and financier guidelines  

 In your answer you should also refer to your ability to: 

•  Identify and respond appropriately to client concerns 
•  Exercise restraint when dealing with clients in conflict situations
•  The process used to gain agreement to proceed from the client.

Question 6. Describe how you would present lender options to a client, including why you chose that option or options and why you chose a particular lender. 

In answering this question, you must consider: how you guide the client through options including: 

• Discussion of impact – advantages, disadvantages, risks and financial implications 
• Fees charges and commissions inclusive of any fees paid by the lender directly to the broker 
• How would you explain to the client the lender conditions as they comply with relevant legislation, regulatory guidelines, industry sector compliance requirements and the lender’s policy? 
• Research and documentation provided to the client 
• Consultation required with other financial services professionals (eg. accountants, lawyers, financial planners, valuers, etc.) 
• Confirmation that the client understands the options presented and any concerns are addressed 
• Providing information on complaints resolution procedures (internal and external) as included in the information provided to the client.

Assignment 4. SERVICING, RESEARCH and RISK

Question 1 

In this exercise we are analysing some financial statements in preparation for completing a submission to a financier. The scenario is provided below and an income statement and balance sheet are then provided for Wholesale Butchers. 

You will then have 3 tasks to complete – A, B and C below. TIP: You may wish to reference the INT Services Practice Activity which you completed in Part 2 of the course learning guide: 

1. Using the 2 financial statements provided for Wholesale Butchers Pty Ltd, calculate the ratios in the table provided and comment as to the risk using Low/Medium/High rating: 
2. Complete the manual Serviceability Analysis for Wholesale Butchers Pty Ltd by inserting the figures into the table provided 
3. List your comments on the outcome from your completed Serviceability Analysis as you would if presenting this in a submission to a lender. 

Scenario: 

Mr Brett Olsen has owned his wholesale butcher company “Wholesale Butchers” for the past four years. He is the sole director and shareholder of the company. The past six months has seen an influx in orders and, to keep up with demand, he requires another refrigerated van in order to maintain delivery standards and turnaround times to his respective buyers. 

Mr Olsen wants to purchase a second-hand van, 1 year old, from RV Dealers for $55,000 and is considering a 5-year Chattel Mortgage (CM), with an interest rate of 6% and monthly repayments of $1,073. He has opted not to provide a deposit and is not seeking any balloon at the end of the loan term. As no deposit is to be applied, repayments will be monthly in advance. 

Mr Olsen’s only business debts are an overdraft with CBA with a limit of $25,000 and current balance of $2,800 at 6% and his CM with 6% loan with Esanda for his existing refrigerated van, with monthly repayments of $1,058 pm and 2 years remaining. His financials for the financial years ending 2020 and 2021 are provided here for your perusal and assessment

Question 2. 

Please research the Internet (eg. Google) on the subjects below and review the course material, then provide comprehensive answers to the following: 

A TRUSTS 

1.  What is a Unit Trust? 
2.  What is a Discretionary Trust? 
3.  What is a Hybrid Trust? 
4.  What is a Discretionary Family Trust? 
5.  What is a Trustee? 
6.  Define the differences of each type of Trust, including the obligation/s of the Trustee 
7.  Provide an example of when each type of Trust would be used. 

B COMPANY 

1.  What are the legal requirements of a company? 
2.  What are the personal obligations of directors by law (please summarise)? 
3.  Can anyone be a director of a company? 
4.  What is the minimum number of directors required?

Question 3: 

From your research in the course and the Internet please provide answers to the following (from a Financial Accounting perspective): 

1.  What is a Balance sheet? 
2.  What is a Profit and Loss statement? 
3.  What is Depreciation? 
4.  What is Liquidity Ratio? 
5.  What is Current Ratio? 
6.  What is Debt to Equity Ratio? 
7.  What is a Cashflow Statement? 
8.  What is an Asset? 
9.  What is Liability? 
10.  How is a Net Profit determined? 
11.  How would you define Equity? 
12. Under Australian taxation conditions, what are allowable expenses (provide 3 acceptable examples)?

Question 4: 

From your research in the course and the Internet please provide a definition of the following 4 products and give examples: 

1.  Commercial Bank Bill 
2.  Invoice or Factoring Finance 
3.  Chattel Mortgage 
4.  Asset Finance product or Equipment Finance 

Question 5: 

In the Australian Standard ISO 31000:2018 there are 8 Principles of Risk Management.

A) Please list six (6) of them and

B) briefly state what each one is about.

Question 6: 

There are many ways that an Industry Analysis can be completed. We have provided a sample below of a simple process to categorise the overall risk of any business/industry that you may choose to analyse. Please review the entries below. To simplify the process some factors have been grouped together to alleviate any overlap of impact. 

Question 7: 

Referring to information in the Course Learning Guide Part 1 and using either your own, or a fictional finance broking company: 

1.  Identify and describe 2 specific risks that the broking company could face. For example, Fluctuating Income leading to inability to pay bills or a Compliance Breach. 
2.  Identify and describe what risk controls and risk mitigation strategies could be implemented to managing these 2 risks. 

Your answer should cover the following points: 

1. How would you categorise the risk (eg. Strategic / Financial / Other)? 2. Which stakeholders would potentially be involved or impacted? 
2. What are the types and key principles of risk controls? 
3. Which controls could be put in place to avoid or mitigate these specific risks? 

Question 8: 

Risk appetites should be aimed at improving business performance. If your broking firm had a strategic imperative of customer satisfaction and the risk appetite statement outlines a low tolerance for customer dissatisfaction, what risk management controls could be put in place? 

Question 9: 

You are a self-employed Credit Representative in your second year of operation working, under a Credit Licensee. Your PI insurance premium is due to be paid and it has been increased by over $500. Due to minimal income for the past few months, you decide to let it lapse as you are just coping thanks to trail commissions and you will aim to renew it again in six months’ time. After 3 months has passed your Licensee requests a copy of your renewal notice and you cannot supply it. 

1.  Would the Licensee be obliged to report you to ASIC? 
2.  If not, what would be the appropriate steps to take? 
3.  If so, what would be the reporting process?

Assignment 5. 

PART A - WORKPLACE SUSTAINABILITY 

Question A1 . Business organisations are expected to develop and implement sustainability policies. Policy scope refers to the people or actions to which a policy applies. List 5 items that might be covered in the scope of a sustainability policy. 

Question A2 . List at least 6 key elements that should be included in an organisation’s sustainability policy (eg. timeframes). 

Question A3 . Explain continuous improvement and how it would apply to a sustainability policy. 

Question A4 . List 3 ways you, as a manager, could support the implementation of a sustainability policy (eg. employee rewards). 

Question A5 

1.  List 6 potential barriers to implementing sustainability polices 
2.  List 3 strategies to overcome them.

Question A6. Workplace Sustainability Policy Case Study 

Task: Prepare one workplace sustainability policy with supporting procedures. There are 3 parts to this Task indicated by A Plan, B Implement, C Create below. 

Your topic can incorporate economic sustainability, social sustainability or environmental sustainability or a combination of these. 

•  Create your answer as a Word document which follows the instructions below. 
•  You must provide an answer for each Task. 
•  Your layout can be in the form of a guide (for others to follow) or as an internal procedure which headings and itemised points. You should ensure you following the structural guidelines provided for you in the Course Learning Guide topic on Sustainability. 

1. Task A – Outline your understanding of how you would prepare and plan for the 1) development and 2) implementation of one significant sustainability policy and with supporting procedures for your business (or proposed business). 
2. Task B – Outline how you will implement the new policy or procedure within the business’s wider policies and procedures. That is, your new policy will be one of possibly many existing policies that are already in place. How do you envisage your workplace sustainability policy will fit alongside other policies covering for example compliance procedures and policies. You should also incorporate how you will engage with relevant stakeholders. 
3. Task C – Create the policy including the numbered topics below. 

Points to Cover: 

1. Define scope and objectives of your sustainability policy - what you want to achieve. IMPORTANT: Your policy must include reference to the broad approach of Triple Bottom Line principles: minimising negative social, environmental, and economic impacts and/or creating positive outcomes in these areas. 

2. Gather information from a range of sources to plan, develop and implement your policy and list those sources. 
3. Make note of Australian and international standards relating to corporate sustainability, along with any relevant legislation, regulations and codes of practice applicable to the organisation. 
4. What are the timeframes and anticipated costs to develop and implement your policy (you may estimate; you do not need to research specific costs or timeframes). 
5. Activities are the specific actions to achieve goals. What activities are to be undertaken to support your policy scope? 
6. Who will do what, that is, what are the assigned responsibilities? 
7. What are the performance indicators of success (KPIs)? Research on the internet if you are not familiar with KPIs. 
8. Outline record keeping, reviews and improvement processes within the sustainability policy and procedures. For example, how is the policy documented; are there regular audit time frames and improvement evaluations. 
9. How will you engage relevant stakeholders in policy development, implementation and towards continuous improvement? Ensure you include a list of stakeholders (and their roles) that you believe would be relevant and how they might assist: 

o With development 

o With implementation 

10. Make reference to common sustainability issues with organisational systems and procedures. The course unit will assist you. 
11. Finally, provide 2 suggestions on how a workplace sustainability policy may be able to be improved in the future (ie. what would need to change for an improvement to be appropriate).

PART B – ETHICS 

Question B1. Name 3 examples of legislation that sets minimum standards of conduct for a Finance Broker running their own business. 

Question B2. In 3-4 sentences, describe how ethics differs from the law. 

Question B3. What is an ethical dilemma and give an example you may encounter as a broker? 

Question B4. List 3 ways a person could prevent their own biases and psychological tendencies from impacting negatively when making an ethical decision 

Question B5. List 3 potential Organisational Barriers and 3 actions an organisation could take to overcome them. 

Question B6. Ethical Decision Making Case Study 

Task: Provide evidence of your ability to apply an ethical decision-making framework to a workplace ethical situation and determine an appropriate response.. 

For the purposes of this exercise, we are not asking what you would do in this situation, but rather what options this broker could take and why.