1. Case Study: Applying for a Bank Loan

a) Mr Brown is talking to his bank manager. He would like to have a loan to start a small business.

Read the conversation and fill in the details required by the bank manager on the interview sheet.

Bank manager Good morning, Mr Brown. Do take a seat. How can I help you?

Mr Brown Good morning. Yes, you may be able to help me. You see, I'm thinking of starting a business of my own and I need some financial advice.

Bank manager I see. What sort of business are you thinking of going into?

Mr Brown Well, I suppose the best way of describing it is tourism. I'd like to organize European tours.

Bank manager May I ask whether you have ever worked in this field before? I mean you're a teacher, aren't you?

Mr Brown Yes, I am – a French teacher – and I've organized lots of trips abroad for children.

Bank manager Yes, but have you really looked into the arguments for and against going into business on your own? Have you fully researched the field you're interested in? Have you done a market survey? Have you looked at the competition?

Mr Brown I must admit I haven't got that far yet. In fact, what I would really like to know from you is, would I be able to get a loan, just short term, to cover the start-up costs?

Bank manager Well, we would have to look very closely at the venture, get the key facts straight. We'd look at the type of company you intend setting up. Then we would need a breakdown of the start-up costs: premises, staff, advertising costs, etc. Then calculate your present assets and liabilities. Let's consider the last point first. What assets do you have which you could offer as security for the loan?

Mr Brown Well, there's my house; that

must be worth at least £200,000. Then I have some savings, around £50,000, and I have some shares. I would think my total assets would be about £350,000.

Bank manager Shares, eh? And what can happen to share prices?

Mr Brown Well, yes, I have made some small losses occasionally but I've taken that into consideration.

Bank manager Do you actually own your own house or have you got a mortgage or some other sort of loan?

Mr Brown I have a very small mortgage.

There's only about £20,000 left to pay over the next eight years and I have no other liabilities.

Bank manager Mmmm. What size loan do you have in mind?

Mr Brown I thought £400,000 would be enough to get the business off the ground.

Bank manager May I ask how old you are?

Mr Brown Forty-eight next November.

Interview Sheet

Name ________________________________________________

Age ________________________________________________

Type of enquiry Loan to start up a new business

Type of business ______________________________________

Present occupation_____________________________________

Preparation for business Yes No

Market survey □ □

Competition checked □ □

Breakdown of start-up costs □ □

Present assets Present liabilities

House £_______ Mortgage £______

Savings £_______

Shares £_______

Amount required for loan £_________

b) Discuss with your partners what the bank manager's decision will be in this case. Make reasoned assumptions, using functional words of 'probability' given below.

He'll definitely get the loan because…

He might get the loan because…

He probably won't get the loan

He definitely won't get the loan because…