Among these are the following:-

The personal integrity of the prospective borrower.  Here the Bank Manager will consider the customer's personal habits, style of living business and social community. The attitude towards previous obligations, as this reflects the customer's willingness as well as ability to pay debts.

The purpose for which the loan is required.

The earning power likely to result from the loan.  A project with excellent income prospects will be more certain of attracting credit from the bank than its counter part with an uncertain earning record and prospects.

The assets and liabilities of the intending borrower. These will be examined to determine the net amount by which the total assets exceed total liabilities.  This will show to what extent the prospective borrower is indebted and the ease with which the assets can be  converted into cash with which the assets can be converted into cash without loss of value.

The nature, value and marketability of the security offered to support the debt. Properties whose value can be determined easily such as bills of exchange, promissory notes, insurance policies and share certificates, are preferred for this purpose. Other types of securities for loan include land buildings and machinery.

The time period required, i.e. short term, medium or big term loan.

The risk involved in the proposed project.

The current government policy concerning bank lending i.e. whether there is credit squeeze Or credit ease.

Alternative forms of finance.

The banks extend credit to their customers by way of:-

Bank Loan:- A customer is given a fixed amount for a definite period and pays interest on the entire amount. For example, a loan of Shs. 10 million for three years at a rate of 5% per year means that the borrower will have to pay to the bank 10 million plus interest which can be calculated as follows:

Shs 10,000,000 + 500.000 x 3 =11, 500,000/=

Overdrafts:- People with current accounts may be allowed to write cheques to a maximum amount agreed upon in excess of the amount they have on their accounts. The amount by which the account is overdrawn is the overdraft. Interest is paid only on the amount the borrower has actually overdrawn. Assume that a customer is given an overdraft facility of Shs. 10,000,000/= for three years at a 5% rate of interest per year and that he uses only Shs. 5,000,000/= then he will be expected to pay 5,000,000 plus interest on that

shs 5,000,000 +(250.000 x 3)  =Shs.5,750,000/=

Discounting Bills and Notes:- To discount a bill means to buy it at an amount less than that on its face, i.e. buying ii a discount. For example, when a bank customer sells his bill of exchange worth Shs. 50,000 at a Shs.45,000 to his bank then he has discounted the bill at 10% interest or he has sold it at a discount of 10%, A trader who has sold goods on credit and is issued with a bill of exchange payable in six months time can sell it to the bank at a discount and get the money immediately and the Bank keeps the bill until it matures, (iv) Another way of extending credit to the customer is by financing hire purchase transactions.

Money Transmission:- Banks may act as agents for their customers by collecting their cheques, bills notes, dividends and making payments on their behalf. Payments may be on the customers instructions known as Standing Orders. If Customers have regular payments to make such as rent, water rates, club subscriptions they may give details to the bank and authorize it to make the payments on their behalf, as and when they fall due. This arrangement is what we call standing or bank orders.

 Sometimes the bank customers may allow his creditors to make direct claim on his bank account to be paid by the bank on each occasion. This is what is called direct debiting. Thus standing orders are used for making regular payments for fixed amounts, but direct debits are not only used for making regular but also variable amounts and where the time intervals between payments vary.

Another difference between standing orders and direct debits to the payers' account and is passed through the clearing system in the same way as a cheque with standing orders the payer's bank prepares a credit which is passed through the credit clearing system to the bank branch of the creditor.

Bank Drafts: Instead of writing out cheques or giving instructions to the bank to pay means of credit and debit entries, the customer may request his bank to write out the cheque in favour of his creditor who is a customer of another branch of the Bank. A cheque addressed by one bank to another is what is known as a Bank Draft.

Information Service:- Banks issue many publications on various subjects like reports on economic, financial and political conditions all over the world. They can advise their customers on where to invest money, buy stocks and shares, purchase raw materials or sell their goods and services. They can also make inquiries on firms and individuals with whom their customer wishes to trade,

Status Enquiries:- A customer can quote his bank as a financial reference. A status inquiry consists of a short report on a customer's financial standing and is given only to another bank.  Thus a customer may be asked to supply a financial reference before being allowed to purchase goods on credit.  He will then ask his own bank to take up the reference.

Letter of Credit:- A letter of credit is a documentary evidence to the customer by the bank in terms of which the bank guarantees to pay bills drawn on his customer under and in accordance with the terms and conditions of contract of sale or credit.

 Travel Services:- Bank also provide their customers while on business trips with travellers cheques, passport service and letters of introduction.

Negotiable instruments

The learner should be able to;

Define a Negotiable Instrument

State the advantages and disadvantages of Negotiable instruments

Negotiable Instrument is a document the ownership of which is transferable to another party by endorsement, for example a cheque, Bill of Exchange, warehouse or dock warrant.

Negotiable instruments are documents of title to goods or to money which have the following characteristics :-

The legal tide to the instrument passes from one person to another by mere delivery of the instrument by one person to another in the case of bearer bonds, bank notes and coins and bearer cheques for treasury bills and bills of exchange, endorsement is necessary before delivery.

No notice of the transfer need be given to the person liable on the instrument.      

The title to instrument passes free from all counter claims between previous parties and from defects in title of the previous parties. Thus if, for example, a shopkeeper sells bread to you and you pay him by a cheque which you have stolen, and the shopkeeper is not aware of your theft, then he has a better title to the cheque than you the thief.

The transferee may sue in his own name if this becomes necessary. Thus in the above case the shopkeeper does not need to claim from you if the cheque is dishonoured. He can sue the drawer directly since he has a legal title to the cheque.

Standing Orders (S.O): instructions to a bank to pay regularly a sum of money on one's current account in order to settle recurring payments like mortgage repayments, hire purchase transactions, rents, insurance premiums and utility bills.

Credit cards are small card containing a means of identification, such as a signature or picture, that authorizes the person named on it to charge goods or services to an account, for which the cardholder is billed periodically. The use of credit cards originated in the United States during the 1920s, when individual firms, such as oil companies and hotel chains, began issuing them to customers for purchases made at company outlets.

Credit transfer system

This is a means by which one or a number of accounts can be paid through a bank.

Other examples of negotiable instruments are promissory notes, bills of exchange, bearer scripts, share warrants to the bearer, debentures payable to bearer.

The most important of these being bills of exchange cheques and promissory notes.