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LIBF, Commercial Lending > Part 1 > Flashcards

Part 1 Flashcards

1
Q

What factors should lenders consider when evaluating the lending risk for different types of retail companies?

A

type of products sold
proprietor’s skills
profit margins
demand
competition
property ownership business strategy environmental concerns

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2
Q

How do profit margins impact a retailer’s ability to sustain their business?

A

Smaller retailers may need to focus on providing exceptional service or unique products to compete with larger chains if their profit margins are thin.

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3
Q

Why is it essential for lenders to evaluate the presence of online alternatives and barriers to new entrants when assessing retail businesses?

A

Assessing online competition and barriers to entry is vital because the retail landscape has shifted significantly due to e-commerce. Understanding these factors helps lenders gauge a retail business’s ability to thrive in the digital age.

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4
Q

How can the ownership status of the retail property impact a lender’s decision to provide financing?

A

If rented, lenders should consider the impact of rent reviews. If owned, lenders should evaluate how it was financed and the business’s ability to handle potential interest rate increases.

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4
Q

Why should environmental and sustainability concerns be examined when evaluating a retail business’s potential?

A

In food retailing, understanding “food miles” and sustainability can influence consumer decisions and affect a retailer’s long-term viability. Lenders should consider these factors to assess a business’s future prospects.

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5
Q

What are the key subsectors within the service industries?

A

Financial services, healthcare, transportation, travel and leisure, recruitment and training, and waste disposal.

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6
Q

How can economic downturns impact service providers?

A

How can economic downturns impact service providers?

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7
Q

What is one of the key challenges service businesses face due to high competition in their sectors?

A

High competition levels may pressure service businesses to review their profit margins, potentially requiring them to accept lower profit figures.

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8
Q

What is the trend in delivery methods for service providers?

A

There is a shift from traditional high street models to online solutions, with an emphasis on more personalized service delivery.

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9
Q

How has consumer know-how evolved in the service industry?

A

The availability of information has made consumers more discerning and knowledgeable, leading to increased consumer demands for better service and competitive prices in the service industry.

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10
Q

What is one key success factor in wholesaling that involves ensuring a reliable source of products, especially when dealing with imported goods?

A

Certainty of Sources of Supply is a critical success factor, and it involves mitigating risks by using multiple suppliers.

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11
Q

To gauge stability in wholesaling, what should you check regarding customer needs, such as quality, price, and supply?

A

It’s important to assess whether customers are on fixed contracts to gauge stability in meeting retailer needs.

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12
Q

What skill is essential for wholesalers to quickly replace lost customers if the need arises?

A

Supply-Demand Matching Skills are crucial for a wholesaler’s ability to replace lost customers quickly when required.

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13
Q

Why are financial resources important in the supply chain, especially when dealing with perishable or fashion goods?

A

Financial resources are vital to prevent supply chain disruptions, particularly when dealing with goods that are perishable or subject to rapid fashion changes.

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14
Q

In the dynamic world of wholesaling, what should wholesalers be aware of and adapt to in order to remain competitive?

A

Wholesalers should be aware of and adapt to Global Competition and the expanding Global Marketplace to remain competitive in the industry.

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15
Q

What are the main challenges faced by the manufacturing industry in the UK in the 21st century?

A

The manufacturing industry in the UK faces challenges such as global competition and cost disadvantages.

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16
Q

In the manufacturing sector, what is the significance of a company’s technological competitiveness?

A

It allows it to focus on high-value-added segments and overcome challenges in labor cost competitiveness.

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17
Q

Why is it important for lenders to assess a manufacturing company’s production capacity?

A

It helps determine the company’s ability to meet demand and remain competitive in the market. It also considers the overall global market capacity, which impacts business success.

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18
Q

What factors should lenders consider when evaluating a manufacturing company’s cost base?

A

Lenders should evaluate a manufacturing company’s cost structure, which may include high fixed costs. It’s important to assess how the company manages variable costs effectively, for instance, through practices like “just in time” inventory management and quality control.

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19
Q

How can manufacturers contribute to environmental sustainability, and why is it important for lenders to consider this aspect?

A

Through eco-friendly product development and recycling efforts. It demonstrates the company’s commitment to responsible business practices and its ability to adapt to changing environmental regulations.

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20
Q

What are the three main customer types for bank lending in the property market?

A

Building contractors
Property developers
Property investors

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21
Q

Why is cash flow crucial for building contractors in property development projects?

A

Profit often comes near the end of the project, and they need sufficient funds to cover expenses throughout the project’s duration.

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22
Q

What serves as security for loans provided to property developers, and how are the loans released?

A

The property title and the developer’s creditworthiness.
Released in stages as the development progresses.

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23
Q

What the Steps for Developing Estates or Complexes:

A

Acquire land.
Plan development.
Match budget to expected yield.
Monitor progress and start marketing.
Complete unit sales or transfer to an investment company.

24
Q

How do property investors evaluate the financial health of their investments, and what does a ratio below 1:1 suggest?

A

Comparing the net rental income to the gross interest cost ratio. A ratio below 1:1 suggests poor yield relative to borrowings but may be offset by property appreciation.

25
Q

How are requests for farm loans typically analyzed?

A

using a common-sense approach like RIOTARS.

26
Q

Name the subsectors of farming mentioned in the text.

A

arable farming
dairy farming
poultry farming
pig farming

27
Q

What are some factors that affect the suitability of farms for loans?

A

weather, market prices
income seasonality
milk quotas
grants/subsidies.

28
Q

What are the traditional aspects of farming?

A

production seasons
cash flow seasonality
asset-rich but cash-poor farms
need for regular monitoring.

29
Q

What is the historical perception of professional firms in lending?

A

Professional firms have been seen as good lending prospects with low perceived risk, although they offer lower returns due to narrow profit margins.

30
Q

What are the categories included in professional firms for lending?

A

solicitors
accountants
architects
estate agents
independent financial advisers (IFAs)
doctors
dentists

31
Q

What is the typical operational structure of professional firms in lending?

A

Partnerships or limited liability partnerships (LLPs).

31
Q
A
32
Q

When considering lending to solicitors, what are some key factors lenders should consider?

A

Lenders should consider control of clients’ money (not included in net worth), firm specializations, client leads, future business prospects, and partnership structure and investment.

33
Q

What are some similar considerations for lending to accountants as for solicitors?

A

Similar considerations for lending to accountants include the mix of income, adequacy of professional indemnity insurance, partnership agreements, cash flow, staff costs, value of client leads, and the impact of partner changes.

34
Q

What challenges might lenders face when trying to establish exclusive banking relationships with large accountancy firms under LLPs?

A

Lenders may encounter challenges in building exclusive relationships with large accountancy firms under LLPs.

35
Q

What are some key issues to consider when lending to doctors and dentists?

A

Type of practice (public, private, or mixed)
Surgery premises and financing
Inventory control (for dispensing practices)
The fact that lending levels are often higher due to low perceived risk.

36
Q

Why are doctors and dentists considered attractive prospects for lenders?

A

Their low-risk perception in the lending industry.

37
Q

What is franchising?

A

Franchising is a business model where a franchisor allows independent entrepreneurs (franchisees) to use their established brand, products, and business methods for a set period.

38
Q

How do franchisees make money in a franchising arrangement?

A

By selling products or services under the franchisor’s brand, benefiting from its reputation and marketing efforts.

38
Q

What do franchisees receive from the franchisor?

A

Training
Support
Access to the franchisor’s Brand
Products
Marketing strategies.

39
Q

What fees do franchisors typically charge to franchisees?

A

Upfront fees (franchise fees) and a percentage of the franchisee’s sales revenue as ongoing royalty fe

40
Q

What does PESTEL analysis evaluate?

A

External factors affecting organisations.

41
Q

What does the acronym PESTEL stand for?

A

Political, Economic, Social, Technological, Environmental, and Legal factors

42
Q

What does the “Political” aspect of PESTEL analysis examine?

A

Government policies. stability and events that can impact an organisation.

43
Q

How can PESTEL analysis help organisations?

A

Helps organisations understand opportunities and threats in their external environment, aiding in strategic planning and decision-making.

44
Q

Which factor of PESTEL analysis considers economic conditions and indicators?

A

The “Economic” factor

45
Q

In PESTEL analysis, what does the “Environmental” factor focus on?

A

Ecological and sustainability concerns.

46
Q

What does PESTEL analysis guide organisations in doing?

A

Adapting to changing external circumstances by providing insights into potential risks and opportunities.

47
Q

Which factor of PESTEL analysis focuses on cultural, demographic, and social trends?

A

The Social factor

48
Q

What does the Technological factor of PESTEL analysis assess?

A

Technological advancements, innovation, and their impact on the business environment.

49
Q

What does the Legal factor in PESTEL analysis examine?

A

Industry regulations, laws, and legal factors that can affect an organization’s operations.

50
Q

What does the Threat of New Entrants assess in Porter’s Five Forces Model?

A

Barriers to entry into an industry, including factors like capital requirements, brand loyalty, and regulatory restrictions.

51
Q

In Porter’s Five Forces Model, what is the Bargaining Power of Suppliers focused on?

A

Evaluates the influence of suppliers, especially when they are scarce or provide unique products or services.

52
Q

What aspect of the business environment does the Bargaining Power of Buyers consider in Porter’s Five Forces Model?

A

The influence of customers on factors such as pricing and product quality.

53
Q

In Porter’s Five Forces Model, what does the Threat of Substitute Products/Services examine?

A

Alternatives in the market that can limit a company’s pricing power or market share.

54
Q

What does Rivalry Among Competitors assess in Porter’s Five Forces Model?

A

Intensity of competition within an industry, which can be influenced by factors such as market size and product differentiation.

55
Q

What is the primary purpose of Porter’s Five Forces Model for businesses?

A

Help businesses assess the attractiveness and profitability of an industry.

56
Q
A

LIBF, Commercial Lending (1 decks)

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