Four or more different forms of notes are used. One is an ordinary promissory note used for unsecured loans. Such loans are made only to applicants who appear perfectly good; to insist upon collateral in such cases would probably cost the bank a good customer. This form is usually discounted. A second form is used for secured loans and is discounted. A third form is used for secured loans and carries interest to maturity or provides for the payment of interest at stated intervals. And the fourth form is a collateral note made payable on demand, the loan being payable at any time with accrued interest.
Time Limit, Renewal, and Cancellation of Loans The commercial bank fixes the time limit on its loans, usually at six months, and it rarely loans for longer periods. A great many of the loans are renewed, however, but it is a sort of unwrit ten law that each borrower shall clean up his indebtedness with the bank, say, once a year. In no case should a bank obligate itself in advance to renew its loans; to do so would in reality be to make long-term loans. While it is not customary to extend de mand loans to out-of-town banks, such as are made are practically payable at their option, and since the loan is therefore a fixture, the rate thereon should be as high as on time loans. Even in the case of those banks where demand loans can be called at will, the out-of-town bank may be distant and it takes a much longer time to get remittance than in the case of stock broker's loans. Call loans to stock brokers differ also from demand loans to out-of town banks in that the rate on the latter is fixed for the time they run, but on the former the rate varies from day to day.
Occasionally banks or corporations may arrange their loans and then before the loans mature receive funds which make it unnecessary for them to have borrowed money. In such circum stances they would naturally like to take up their loans, and therefore they ask to be permitted to prepay their notes and be allowed a refund of interest for the unexpired time. The loaning bank does not encourage this practice, for a loan could be ar ranged when money rates are high and prepaid when they are low; if the interest were refunded at the higher rate, the party might then borrow elsewhere at the lower rate; the practice would amount to a speculation on the rate of interest. If the
refund, however, were computed at the rate prevailing when the loan is paid, speculation would be obviated.
When a borrower has an account at the bank, it is customary to charge the amount of the loan to his account at maturity. The note is then canceled, and if there be collateral with it, the note and collateral are returned to the borrower, unless the bank is otherwise instructed. Sometimes bonds held as collateral are turned over to the customers' securities department to be held for safe-keeping for the borrower. It is customary in the case of ordinary unsecured notes of a corporation to charge them at maturity and return them at the end of the month with the cus tomer's other canceled vouchers; but when a check is sent for paying the loan, the note is returned at once when paid. If the borrower's balance is not sufficient to enable the bank to charge the loan, the borrower is advised of the facts, usually by tele graph, and he either remits funds or renews the loan. When the loan is carried past its maturity date, interest is charged for the additional time, the lending bank making its loans on a special form of note which protects it in such cases.
Records of the Loan Department "Street loans" are made, as was stated above, either by the bank's money-broker on the board or, as frequently happens, by stock brokers keeping accounts with the bank who call the loan department on the telephone and inquire whether they can have a certain amount. The bank's instructions to its broker stipu late the total amount he is to loan and the parcellation of it; as he places it he advises the loan department by messenger of the names of the brokers to whom loans have been made and the amount loaned to each. When these loans are received, the loan clerk examines the collateral, etc.; and if acceptable, he ap proves it and passes it on for a cashier's check or credit. A clerk then prepares the card, to which reference was made above. Finally a permanent record is made by the clerk who has charge of the loan book. This record includes the date, the name of the broker, the amount, number of shares of each stock, or number of bonds, and the total, the loan being indexed under the name of the borrower and the amount.