What Are The Precautions In Leading Loans?

Bank's funds mostly consist in deposits of individuals and large and small business houses.  All these deposits have to be returned.  Banks enjoy the right to use these funds in advancing loans.  If they exercise this right they run a risk of losing this money.  If, on the other hand, this right is not exercised, the funds will lie idle yielding no profit making is possible to pay interest to their account holders.  The only way out left for banks is to utilize these funds in advancing loans judiciously and with precautions which are as follows:

When loans are advanced against pledge, mortgage, or collateral securities, they are known as secured loans.  For advancing such loans the bank follows precaution as under.

1. Life insurance policy: some important observations considered are:
a. Insurance company is financially strong.
b. Policy is valid rather than lapsed.
c. Not used as second mortgage.
d. Age accepted by the insurance company.

2. Stock exchange securities
Banks accept stock exchange securities as collateral for loans.  These securities include shares, bonds or debentures.

3. Immovable properties:
Banks also advance loans against immovable property as mortgage including land, building, plant, and machinery.

4.  Other items / Articles:
   Other items that can be pledged include jewelry, bills of lading, railway receipts, delivery orders, dock warrants, ware house receipts etc.

Make sure to check the fine print and get copies of everything to review!