MEMO:
Mr. Wilkson, Manager, I.T.
Subject:
1) Purchase of Computer, Printer and Server
2) Through loan from a Bank.
A loan is basically apportioning of financial assets between the lender and the borrower for a particular period. But for the use of his money the lender charges a fixed amount of interest. Of the four types of income rent, profit, wages interest is the fourth type. You may call it a cost of borrowing. It is the income of the lender.
Normally loans are of following types:
i) Installment loan;
ii) Overdraft;
iii) Secured;
iv) Unsecured;
v) Long Term and
vi) Short Term.
Installment Loans are disbursed in one go and repaid with interest at the agreed intervals Overdraft is a facility against say a Bank's Fixed Deposit which starts incurring interest when a cheque is issued by the borrower. Secured loans are against a collateral and unsecured without it. Long Term Loans are for the purchasing of costly capital items for long periods which can be repaid with interest in installments out of profits. Short Term loans are like working capital paid within a short period. They are meant to meet the day to day expenses of the running of the business during the period company's bills receivable are met by the customers.
loan creates an obligation on the borrower that he will pay the interest at the fixed or adjustable rate by the period agreed upon until the entire amount, called principal is repaid. In the event of default the lender will have the right to take the possession of the article against which the loan has been extended
The company being a legal person functioning through the board of directors headed by a chairman has to authorize through a resolution to a director, Senior Manager generally the Chief Finance Officer or the Chief Accountant to enter into contract with the lending bank or Finance Company to borrow a specified amount as loan against any collateral or bills receivable for a Long Term Loan, over draft facility, working capital or any kind of revolving loan. The company's signature is the seal that is embossed on the stamp paper and then signed by the above authorized persons under Company's stamp which must begin with the words for and behalf of the XYZ Co. Inc.
The company can lease the equipment without any out of pocket expenses, with tax benefits and 100% financing including shipping and set up. For technology equipment it has the option to go either for the bank loan or lease it as it may suit it.
Problem:
Your law firm is in the process of purchasing new company computers, printers, and servers. In doing this, your firm is planning to take a loan out from the bank to complete the transaction. The IT manager, Mr.wilkson, who is in charge of the transaction, does not understand what type of contract the company is entering into, or what most of the legal terminology means. With that in mind, your supervisor has requested that you prepare a memo that will assist Mr. wilkson in his understanding of the contract. Specifically, he wants you to explain secured and unsecured debt and what occurs if the firm defaults on the agreements to purchase the technology equipment.
I must submit a memo which you explain to Mr. wilkson secured and unsecured debt and what occurs if the firm defaults on the agreement.
• Address the situation.
• Discuss the types of loans banks hand out to large companies.
• Define secured debt.
• Define unsecured debt.
• Explain what type of contract your firm has agreed on.
• Explain the legal terminology associated with secured and unsecured debt.
• Define loan default.
• Discuss the affects of defaulting on the contract agreement.