Assignment-1 FNS50322 LOAN SUBMISSION Assignment Answer

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Overview

The purpose of this task is to allow you to demonstrate that you can complete the major steps required in broking or writing a moderately complex loan for a customer – through identification, development and implementation of loan options while assessing and managing risks. The samples provided online in Appendix a) and b) will prove helpful. Remember that what you prepare would, in the real world, need to be presented to the client orally and thus must be understood by them.

INSTRUCTIONS

Read the scenario provided and using the information and data supplied, prepare a formal loan submission for a lender using the following headings. Use subheadings where appropriate to ensure your submission will be easily read and understood by the lender.

The client file would contain the standard client information and data that would be included in a typical submission for a loan of this complexity. Created as a Word document, your lender submission should include as a minimum the following headings:

Borrower’s Details
Background
Loan Purpose
Facility Details (research a Bank website for commercial loan terms)
Funds Position
Servicing Capacity (use manual calculations and show all workings)
Security
Risk Assessment and Management (according to lender policy, guidelines and relevant legislation). Consideration must be given to any environmental, heritage or native title implications
Recommendations
List of Attachments*

* Attachments which would normally be included in a submission to a lender all need to be listed for the purpose of this assignment. You will not need to create “dummy” supporting documents.

SCENARIO

Angus Bollard has been a real estate agent for over 20 years and jointly with his wife Janice own 6 shops at 55 Park Road, Belmont. Mr and Mrs Bollard own the shopping centre under the Bollard Family Trust. The property was recently valued at $1,450,000 and has a current ZZZ Bank mortgage of $575,000.

Five of the shops are rented out for $96,000. The sixth shop is occupied by Mr Bollard’s real estate business, Bollards Real Estate Pty Ltd, which pays annual rental of $42,000 to the Family Trust.

Bollards Real Estate Pty Ltd was formed at the beginning of the last financial year to take over the real estate agency business, which was previously conducted by a partnership between Mr Bollard and James Hopper. Bollards Real Estate Pty Ltd took over the business when Mr Hopper retired; Angus Bollard is the sole director of Bollards Real Estate Pty Ltd.

Mr and Mrs Bollard now wish to acquire 3,000m² of land near their existing shopping centre and hold it for 1 – 2 years pending rezoning. The purchase price is $550,000. The land was previously used as a State Government Health and Dental Centre, but the building was demolished when it became obsolete. The land is currently zoned ‘Special Purpose’, but the local council earmarked the land for future ‘Commercial’ use in its recently released Town Planning Scheme. The land is located at 423 Belmont Road, Belmont and has a two-street frontage with considerable passing traffic.

The Bollards have contracted to purchase the property in their capacity as trustees of their Family Trust and settlement is due with 60 days. They wish to raise 100% of the purchase price plus $25,000 for stamp duty, financing and conveyancing costs. They are willing to offer both the land and their existing shopping centre as security for the proposed loan. They will contribute a further $20,000 over the next 1-2 years to cover the costs associated with re- zoning of the property and obtaining approval to develop another shopping centre.

ZZZ Bank policy does not allow lending against land zoned ‘Special Purpose’ and cannot assist with the purchase. The Bollards have appointed you to approach an alternative lender to refinance their ZZZ Bank loan and obtain the additional funds required.

Applicant’s Information

Assume a variable interest rate of 6.5% on a 15 year term for the existing commercial loan, 6.5% variable on a 5 year term for the new loan, and 7% variable for the overdraft.

Angus Mark Bollard – DOB 29/07 1975 DL # 2945758 Janice Elizabeth Bollard – DOB 15/06 1977 DL # 2786454

Married with three adult children (one working in the real estate business)

Address: 12 Currumbin Close, Carindale QLD 4152

Accountant – Ainslie and Partners Telephone – 07 3349 9999

Work History

Angus has been a real estate agent for 22 years in the Brisbane south-east area, he specialises in commercial and industrial property (rent roll comprises 75% commercial and industrial properties). His gross salary last financial year was $78,000. In the previous financial year, he drew $55,000 from the partnership with James Hopper.

Janice has been an employee, employed as the property manager since Bollards Real Estate Pty Ltd took over the agency after the partnership. Her gross wage last financial year was

$43,000. She did not work in the previous financial year.

Financial Information

state Pty Ltd recorded the following financial results:

Gross Revenue $346,000

Net Profit $ 72,000

Depreciation $ 14,000

Director Superannuation $ 11,000

In the previous financial year, the partnership of Angus Bollard and James Hopper trading as Bollards Real Estate recorded the following financial results:

Gross Revenue $422,000

Net Profit $ 84,000

Depreciation $ 16,000

Director Superannuation $ 11,000

The Bollard Family Trust purchased the shopping center at Park Road Belmont 18 months ago and its financial statements for the past financial year are as follows:

Gross Rental Income $138,000

Loan Interest $ 52,000

Management Fees $ 11,000 (paid to Bollards RE Pty Ltd)

Net Profit $ 50,000

Depreciation $ 25,000

Personal Financial Position – Angus and Janice Bollard

ASSETS

House at 12 Currumbin Close Carindale QLD $560,000

Share Portfolio (Blues Chip Listed Shares) $345,000

Motor Vehicles $ 60,000

Furniture $ 85,000

Cash at Bank $ 45,000

LIABILITIES

Home Loan with ZZZ Bank $190,000 *

ZZZ Bank Credit Card (Limit $20,000) $ 10,000

*Existing home loan is currently fixed at 3.5%, choosing to pay P&I with remaining loan term 25 years.

Financial Information Continued

Financial Position of Bollards Real Estate Pty Ltd ASSETS

Business Goodwill $250,000

Plant & Equipment $ 35,000

Debtors $ 30,000

LIABILITIES

ZZZ Bank Overdraft (limit $40,000 secured by residence) $25,000

(Keep in mind that, in the absence of actual tax returns which would confirm the income distribution of the trust, any profit would be distributed and taxed in the hands of the beneficiaries. For the purpose of this assignment, assume company tax rate of 25% and superannuation rate of 10.5%, even though in “real life” of course you cannot assume, and the distributions would be clear in “real life” financials.)

Property being purchased

Vacant Land

423 Belmont Road, Belmont QLD 4171

Lot 84 on RP 9564 Zoning “Special Purpose” Area 3000m2

Existing Property

Shopping Centre

55 Park Road, Belmont QLD 4171

Lot 43 on RP 9542 Zoning “Commercial” Area 1850m2

Tenancies

Tenant	Rent	Term	Rent Review
J & R Blend T/A Blend News	$22,000 pa net	3 + 3 years	Annually by CPI
Copelin Accounting Pty Ltd	$18,000 pa net	1 + 1 + 1 years	Annually by CPI
R Spragos T/A Roger’s Deli	$28,000 pa net	5 + 5 years	Annually by CPI
Vu Nguyen T/A Care Pharmacy	$20,000 pa net	3 + 3 years	Annually by CPI
M Goodson T/A Good Alterations	$8,000 pa net	3 + 3 years	Annually by CPI
Bollards Real Estate Pty Ltd	$42,000 pa net	3 + 3 years	Annually by CPI

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