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   Chapter 17 PAPER OFFERED FOR DISCOUNT

Up To Date Business By Various Characters: 3380

Updated: 2017-12-06 00:03


One of the most valuable parts of a banker's education is to learn whom to trust. Every bank should have a well-organised and thoroughly equipped credit department, in charge of some one who can be relied upon to investigate carefully all names referred to him by the officers. A banker has the right to expect the fullest confidence on the part of the borrower, and the borrower should furnish him with a complete and detailed statement of the condition of his affairs. It is safe to conclude that when a borrower refuses absolutely to give any information as to his financial condition his credit is not in the most favourable shape.

Many of the banks have blank forms which they, from time to time, ask borrowers to fill out. These statements show in detail the assets and liabilities of the firm in question; they show the notes which are outstanding, the mortgages on real estate, and many other particulars, including the personal or individual credit of members of the firm, if a partnership.

In estimating the value of paper offered for discount the following points should be considered:

The total net worth of the borrower.

The character of his business; whether it is speculative or staple.

The borrower's record and standing in the community and his business habits.

Whether he is in enterprise abreast with modern ideas and methods.

The character of the merchandise owned by the borrower. What would it bring under the hammer? Groceries and raw material can usually be turned into cash at a forced sale at very small discount from current prices. Not so with hardware, glass, dry goods, boots and shoes, books, etc. Machinery and fixtures are not a bankabl

e asset upon which to base credit.

The banker should note his borrower's bills payable. Why did he give notes? Are they met promptly? Many houses prefer to sell their own paper in the open market, and keep their banks open for accommodations when they are unable to secure outside credit. The insurance carried should be considered; also the volume of business done. A large business on moderate capital, with long credits, will naturally have large liabilities, while a small business with a liberal capital and short credits should have small liabilities.

Paper offered for discount is of a variety of kinds. The larger proportion of it is from customers of the borrower who have extended their credit by paying their accounts in notes instead of in cash. Such paper is really, though having two names, very little better than single-name paper, for it is not the maker's credit, but the payee's, which the bank usually considers. Many very small notes offered for discount usually indicate a very needy condition.

There are many firms which carry two or more bank accounts, and others who sell their paper to out-of-town banks. In buying paper it is important to ascertain whether the firm is in the habit of taking up paper at one bank by floating a loan at another.

Paper may be classified for purposes of discount as follows:

Bills drawn by shippers on the houses to which the goods are shipped.

Bills drawn by importers against commodities placed in brokers' hands for sale.

Bills arising out of our manifold trades and industries.

Drafts with bills of lading attached.

Paper having personal indorsements.

Paper secured by collateral.

One-name paper.

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