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Advances

overdraft, limit, agreed, account, security and notice

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ADVANCES. An advance is granted either by way of overdraft upon a current account, or by a loan upon a separate account. or, in some districts, upon a promissory note. The discounting of bills is practically the same as making an advance upon the security of the bills.

In considering an application for an ad vance. a branch manager is influenced by his own personal knowledge of the borrower, by the figures as shown by the certified balance sheet of the customer, and by the history of previous transactions and the various conclusions to be drawn from a careful study of the customer's account. Some of the questions which naturally arise in a banker's mind are : For how long is the advance required ? If granted. is it likely to be repaid according to promise ? For what purpose is the money required ? What security is offered ? It may be impossible to entertain an application in the form in which it is first made by a customer. Francis E. Steele, in " Present-Day Banking," says " Any body can grant, or submit to his Head Office. a perfectly good proposal. Anybody can decline a transaction which is obviously impossible. Where the real skill of a bank manager proves itself is in getting a bor rower so to modify an impracticable pro posal that it will assume a shape in which it will be acceptable to himself and to his Head Office." Securities such as second mortgages, reversions, building land, brick fields, shares with a liability attached, etc., are, as a rule, avoided by most bankers. " The most dangerous of all loans," wrote the late J. \V. Gilbart, " are those which are made against unmarketable securities, such as mills, ironworks, coal mines, landed pro perty. etc." The securities most commonly favoured by bankers arc first-class stocks and shares, deeds of readily realisable properties, good bearer bonds, guarantees by reliable sureties, and life policies to the extent of the surrender value.

With regard to unsecured advances, George Rae in " The Country Banker " puts the position in a most practical way. He

supposes Z1,000 to be advanced for three months without security and that the cus tomer fails and pays 5s. in the pound. The profit on the transaction, taking all things into account, will not have much exceeded 5. " To secure this modest recompense of reward, you have risked /1,000 and actually lost 1730. You will have to make 150 fresh advances of f,I,000 each—that is to say, you will have to incur fresh uncovered risks to the amount of f:150,000 to redeem your loss." In granting a limit a banker should reserve to himself the right to cancel the limit, at any time, if he should deem it necessary. In Rouse v. Bradlord Banking Company, (1894, A .C. 586). Lord llerschell said, at p. 395 : " It is not necessary to consider what the rights of the bank were with regard to their debtors when they had agreed to an overdraft. The transaction is. of course, of the commonest. It may be that an overdraft does not prevent the bank who have agreed to give it from at any time giving notice that it is no longer to continue. and that they must he paid their money. This, 1 think, at least it does : if they have agreed to give an overdraft, they cannot refuse to honour cheques or drafts, within the limit of that overdraft, which have been drawn and put in circulation before any notice to the person to whom they have agreed to give the overdraft that the limit is to be withdrawn. That effect I think it has in point of law ; whether it has more than that in point of law it is unnecessary to consider." The length of notice will depend upon what was arranged when the limit was granted ; but a limit cannot be withdrawn before the expiration of the period for which it was sanctioned, unless the customer's position, or his security, has greatly changed for the worse.

Numerous small advances arc, as a rule, more satisfactory than two or three loans for very large amounts.

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