Assignment on complex lending and broking

Task 1A — identify the clients’ complex broking needs
To operate a profitable business, you’ll need the most up-to-date equipment and machinery. To maintain business sustainability, ensure that current equipment is in good working order. Obtaining the most up-to-date technical tools is a critical business operation. These pieces of gear and equipment are critical to the company’s long-term way to increase productivity goals. An equipment loan provides a business operator with the funds needed to purchase the plant and procedures needed to run their operations. Because the acquired equipment or machinery is held in the trust of the creditor, these debts are mostly secured. This permits the borrower to pay back the loan over time while continuing to use the apparatus.
In the given case study, there are two persons Ray Murdoch and Steve Brown who own a successful and expanding metal pallet manufacturing company together. Pallets-R-Us Pty Ltd is their business name. The pallets are made out of cheap, long-lasting material. There seems to be a fairly organized approach to the design and engineering of the pallets in terms of innovation. Pallets are utilized in a variety of industries. Polishing the final piece is a component of the method that is presently delegated to a well-known local contractor. Ray and Steve’s products must meet market requirements. If they are to fulfill their predicted sales and cost of goods sold, they must maintain sustainable production as well as operational costs. They have such a huge customer base that allows them to conduct recurrent ‘business-to-business’ transactions. They’ve been in the company for four years and have a strong business strategy in place, including formal service contracts with three major corporations and some smaller corporations. Ray and Steve now need financing to help them buy an advanced device that uses the CNC technological platform system. This machine may be designed to produce several components in a short amount of time. The device is predicted to last at least 15 years in commercial use, with the ability to operate software updates every three years. The technology and upgrades are included in the $800,000 purchase price, GST included. The client has enough money to cover the expense of the machine’s setup. To fund the machine, the customers are seeking an asset lease. They’ve asked if the equipment leasing facility might be set up for seven years with a 15% residual. Their company employs 5 persons, and they anticipate hiring two more employees in the next three to six months to satisfy production and economic demands as a result of the predicted rise in business due to automation of production. Ray has spent his entire professional life in the metal fabrication industry. He holds a master’s degree in business administration and is well-versed in financial planning. He also has strong engineering talents, having created the majority of the company’s design work. He is a divorced man with no children. Steve is married, and his wife is a schoolteacher who will retire at the end of the calendar year. As a supervisor at ‘Protech,’ Steve worked alongside Ray. His strengths are in manufacturing and project/job flow management. He possesses advanced technical abilities and is capable of completing projects to a high grade.
There arise many questions that on demanding loans from the bank what things they will focus. The first matter of concern is
• What would be the complex features for the purchase of the equipment?
The reason to ask this question is to see that according to them what can be the complexities of the equipment they are going to purchase. These complexities can include, the version of the equipment which is going to be purchased. Finding the place offering a reasonable price for that equipment. These questions will be asked to see if the owners have gone through the estimation of the return that the equipment is going to give them.
• What benefits will this purchase will give to the company?
The reason to ask this question is to see that why they are going to purchase that equipment. Currently what are the issues are facing, and they think that this purchase will meet their need.
• What is the maximum quoted pricing of the machine?
• what were the contract terms of the pricing, such as price condition, setup, guarantee, and software upgrading or updating?
• Do you even have a general awareness of importing processes and attributes affect, charges, including tax issues in imported products, such as tariff duty and GST?
• What is the expected output and profitability after the new equipment is installed, and have the clients made any obligations to achieve cautious and positive results?
• How much money do you have to put towards buying the machine out of your pocket, and what kind of security do you have?
• What will be the risks of purchasing this equipment?
• Are they aware of those risks?
• Are they in the position to bear the risk that this transaction will rise from them?
• Are they aware of the monetary benefits that will be given by this equipment?
• Are they in the position to afford that purchase?
• Does their business allow them to take the loan and it will be soon paid back?
Task 1B
Report to address the loan options
Respectfully, Ray and Steve
Pallets-R-Us Pty Ltd is owned by all of you, and the firm is jointly held by both of you. The company hopes to obtain financial assistance to purchase machinery that will boost the company’s operations. The purpose of the report provides insight into the risks that a company may encounter while purchasing machinery, as well as to examine the application of loan provisions that may be made accessible to the company. The report also shows the company’s available resources as well as the numerous credit options open to it. The analysis also evaluates possible financing sources for the company, as well as the terms of the loan.
The loan that these two people are tsking for their business, to purchase the equipment, will be termed as the Equipment loan. The parties involved in this loan will be two or three. Two parties will be in the case when the business is taking a loan on its behalf because it is meeting the requirements, preset by the bank to get the loan. This contract can also involve three parties if in the case business is not capable enough to get the loan on its behalf because it does not meet the requirements, preset by the bank to get the loan. From the business point of view, both types of getting loans can be safe because the business first has to use the loan and then have to pay back They require $800,000 to purchase the equipment. For the purchase of equipment, the business has two options available one is a term loan and the other is a mortgage loan. There will be a different kind of treatment for both kinds of options available for the purchase. If the business goes for the term loan. They will have to pay a mark-up fixed on the loan amount that will be around 2.7% on the whole loan amount. And if they go for a mortgage, they will have to mortgage some assets equal to the loan plus mark-up. to get the loan approved.
In the two available options, the business should go avail the term-loan option. Because it seems safe that with keeping other assets on the safe side, the business will be able to purchase new equipment for business. And meet the required needs. These options of getting the loan will be given by the private lending companies, banks, and micro-finance companies.
Availing any of the options will include some kind of risks, to do an efficient purchase it will be important to mitigate these risks. The risks can be.
Types of risks Explanation
Inflation Risk Pallets-R-Us Pty Ltd faces no inflation risks because the payment rate is set in the monthly credit option, thus the administration should not be concerned.
Liquidity risk There is indeed a risk of liquidity in the company because the equipment will require a considerable quantity of capital, which will have a big impact on the company’s cash position and capacity to pay the loan effectively.
Market risk The term “market risks” refers to changes in the market that can have an impact on a company’s revenue, which is a hindrance to the company’s plan.

The maximum LVR of a Bank can help with the liquidity risks of the business.
Particulars LRV YEAR 1 YEAR 2
Purchase price
$800,000 NIL
Deposit NIL NIL
Cash contribution NIL NIL
ANZ EMI payment 80% 497408 –
SUNCORP bank EMI payment 60% 373056 –
BOQ EMI payment 65% 404144 –
Commercial bank EMI payment 85% 528496 –

The important documents which would be required by the business to take the loan are as follows:
• Relevant Contract papers of the Machinery
• Proof of residence of business and also income statement for the same
• Documents for collaterals for the loan.
The business will be applying for the loan and the bank will take into consideration for following:
• Analyze how much the business can borrow
• Calculate the cost of a loan
• Investigate the machinery investment option for which the loan is being taken.
• Award pre-approval for the loan
The steps which can be taken are:
• Determine the interest rate for the loan
• Determine the period for the loan
• The expiry period of the loan also needs to be determined. Client Responsibilities
• You will be responsible for paying a portion of the principal loan amount along with the interest amount.
• You are also responsible for informing the lender regarding changes in address, changes in the payment schedule. State Revenue Requirements
• Stamp duty
• Import taxes and also other taxes. The following documents need to be provided to the lender as proof and assurance for the loan:
• The financial statement of the business including interim statements showing current performance for the year.
• A copy of the bank statement to show the cash position of the business which needs to how last 3 months
• The income tax returns of the business and any other lease agreements and any current loan document.
• Track record of the personnel and also financial information regarding the same is also to be provided. • The registration certificate and also the license to operate in business are also demanded by the lenders.
To sanction the loan amount, the lender also needs a guarantor who can vouch for the owner’s Ray and Steve, and in case of any default on their parts will be held responsible for the loan amount. The guarantor can be the spouses of the owners or any other individual. The suggested list of lenders for the loan amount is:
➢ ANZ bank
➢ BOQ bank
➢ Suncorp bank.
Task 3a
Steve Brown and Ray Murdoch are the borrowers for the loan which were referred to by a commercial client. They run a joint business that manufactures metal pallets while the business is successful and growing. As the business is progressing and growing, they have established a client base and have written contracts with major business clients as well as various smaller business clients. The business consists of a total of 5 peoples and have been trading for five years with solid business plans. The commercial client that recommended Ray and Steve to the loan is the guarantor for the loan. The borrower’s Ray and Steve can be contacted by their personal phone numbers which are 9001 2121 and 9002 1212 while the home addresses are Unit 43, 25 High St Northville for Ray, and 23 Desmond Lane Northville for Steve.
The profession of Ray is a metal fabrication which he worked for all his working life. He did MBA and have the understanding about financial management while also have an engineering skill and create a design for the business. Ray is divorced with no dependents. While on the other hand, Steve worked as a foreman at “Protech” before creating a business with Ray. He has production and project management skills with high-level technical skills which provide the business with high standard work. He is married to a school teacher who is retiring this year.
Business Structure and Proposal Overview:
Ray and Steve purchased a machine-based technology platform system of CNC. The machine can help the business to rapidly produce multiple components with a lifespan of 15 years while the software for the machine needs to be updated every year. The machine cost them $800,000 so they considered getting an asset lease for covering the costs for the machine. The proposal provided by them includes an asset lease facility with a seven-year term at a residual of 15%. The finances for the loans are summarized as:
• The purchased amount for the machine: $800,000
• Goods import duty
• Cost and charges: 10,000
• Import value GST: $80,000
The business produces the metal pallets as products while the amount of the loan is considered to be 900,000. The type of loan is the asset lease faculty for the duration of 7 years. The interest rate paid for the loan is proposed to be 15% residual.
Collateral for the loan
The collateral for the loan was decided to be the property Steve given to the lender of the loan as security for the loan. The net amount of the property of Steve was a total of $900,000 which was owned jointly by Steve and his wife Kate. Before the approval of the loan, all the information such as income, cash at the bank, and income was calculated.
Serviceability calculations
The serviceability calculations help consider the amount of the loans which is paid and in relation to the cost and charges incurred by the business.
Sale Price of the machine: $800,000
Stamp Duty: $38800
Lodgment Fees: $6500
Transactional fee: $10
Property valuation fee: $200
Total amount: $45,510
Debt Service Coverage ratio = net operating income / Debt service
= $100,000 / $900,000
= 0.11
Funds-to-completed table
Description Statutory costs and relevant fees
Import GST value (800,000 *10) / 100 = $80,000
Cost and charges $10,000
Goods import duty $500
Transactional Tax by Banks (800,000 * 0.33) / 100 = $2640

Risk management
The potential risks involved in taking the loan include not being able to return the loan as due to some unforeseen circumstances the business might not be able to keep the commitment with the lender. Another risk involved is getting into too much debt. the market risks including current and future pallet market changes and the demand of the pallets. The business can mitigate risk by creating proper strategies which include risk avoidance, acceptance, transference, and limitation.
Relevant information for approval
Pallets-R-Us Pty Ltd Year 1 Year 2
Net profit after tax $200,000 $220,000
Wages to partner 1 – years 1 and 2 $100,000 $100,000
Wages to partner 2 – years 1 and 2 $100,000 $100,000
Dividend to private investor $45,000 $45,000

The business of Ray and Steve can utilize the loan options provided while they can also take the same loan from the XYZ Bank based on installment payment. The loan taken by Ray and Steve will greatly help them in purchasing the machinery required by the business which in turn increases the business efficiency and its production capability. This will help the business to increase its business probability. It is highly recommended for the management of the business to take the loan and put the plan forward in buying and installation of the machine using the installment loan system.
Supporting Documentation
The list of attachments and supporting documents required in the business loan transaction are:
• Loan application form
• List of current orders from client
• Proof of income tax for the previous 2 years and financial statement
• Contracts of purchase from the supplier
• Copy of client’s orders
Task 4a
Question 1
The ABN is business number which gives identity to a business and is important for the taxation and other legal proceedings of the business. The 11-digit number is allotted to the business in compliance with the policies and guidelines of the government and community. In the light of the case study and research conducted under the ASIC, the business name was under deregistration since 2013 and the name got cancelled in 2017 hence NONE of the ABN is applicable to the business.
Question 2
Provided by the evidences from the case study and the standard legal framework, there are two legislative prerequisites to be considered and relooked in the system of the company in the procedural context of commercial lending to clients

  1. Registration of the company name and ABN with the coinciding department of the government of Australia’s service of Business Registration.
  2. The trust building measures of the company between the borrowers and the lenders and regulated leasing process. Affiliation with the Australian Securities and Investments Commission can work as a guarantor in this regard to ensure legal proceedings.
    Question 3
    The reliable sources for the records and verification of the financial management of the data are very significant factors for a business. In the case study given, the clients asked up for the asset leasing policy for financing the target machinery. In the provided case study, it is vital for the company to identify the sources and sites of keeping and managing the financial proceedings in the activity.
  3. The financial activity should be audited and records should be maintained for reliable verification of the process.
  4. In case of the intervention of property as an asset, certificates of ownership and any other property related document should be kept for records.
  5. Bank Statements copy
    4.Tax return file of the company and clients for trust deeds.
    5.Personal assets records to be kept for reference.
  6. 6.Cross checking the data provided with reference to the data issued by ATO.
    Question 4
    The new leasing costs structured by the company has a number of financial impacts on both the lenders and the borrower’s profit rate. The loan process costs a lease fee to the company that gets added into the annual expenses casing a decrease in the monthly revenue of the company. For repenting the amounts spent on the fee of the leases, the company will have to face turnover with intent and compensate the gap. The leases paid will be accumulated in to the incoming expenses scheduled for the approaching year and exempted from the tax.
    Question 5
    Assigning costs of the leases includes the consideration of elements such as the estimated total cost of the machinery, the initial cost calculated, the total span of time for the leasing of the asset, the interest rate applied to the lease of the asset and the other financial data. In the context of the provided case study, the interest rate for the leasing is given as 6% whereby the machinery is to be financed for a total of $800,000 for 7 years. They will pay lease rental for 7 years (principal+interest) i.e. $991998 and the depreciate machine value total (cost + interest) that is *85% over 15 years which is the commercial working span of the machinery.
    Question 6
    Secure transactions in case of leasing assets is an appropriate approach to keep the position of the lender safer and stronger. In case the borrower is unable to comply to the easing terms and policies, the bank or the lender can become the possessor of the asset leased. In the context of the provided case study, the guarantee or charge of claim of any property by the borrower will be the key instrument of security that regulates the loan process and this too should be documented. The impact of this instrument over the business is that it emphasizes a state and sense of obligation and responsibility on both the sides. Even if the company is not able to pay the lease fee or closes in any scenario, the liability of payment persists.
    Question 7
    In the light of the case study provided, there are a few technicalities and reviewable factors in the system of the company that can prove to be productive for bringing sustainability and profitability to the company in the operational as well as legal contexts. The foremost factor analyzed from the case study is their ineffective costing and sales forecasting methods. The costing implies to the product costs as well as the costs of the lease to keep a balance between the sales and the manufacturing processes. This also provides legal credibility to the company. Moreover, they also have to relook over their recruitment structure and sense of analysis about the requirement of staff for the business affairs.

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