Complex Lending and Broking (DIPMB2_AS_v2)

Complex Lending and Broking
(DIPMB2_AS_v2)

Written Assignment result (assessor to complete)

Result summary (assessor to complete)

Feedback (assessor to complete)

[insert assessor feedback]

Before you begin

Read everything in this document before you start your written assignment for the Complex Lending and Broking
(DIPMB2_AS_v2) subject.

About this document

This document is the written assignment and includes the following:

• Instructions for completing and submitting this written assignment
• Section 1: Case Study A – Ray Murdoch and Steve Brown – Commercial Equipment Finance

–    Task 1a – Identify the clients’ complex broking needs

–    Task 2a – Develop complex broking options

–    Task 3a – Implement complex loan structures

• Section 2: Case Study B – Bill Smith and John Jones – Commercial Premises Finance

–    Task 1b – Identify the clients’ complex broking needs

–    Task 2b – Prepare complex broking options

–    Task 3b – Implement complex loan structures

How to use the study plan

We recommend that you use the study plan for this subject to help you manage your time to complete the written assignment within your enrolment period. Your study plan is in the KapLearn Complex Lending and Broking
(DIPMB2_AS_v2) subject room.

Instructions for completing and submitting this written assignment

Saving your work

Download this document to your desktop, type your answers in the spaces provided and save your work regularly.

• Use the template provided, as other formats will not be accepted for this written assignment.
• Name your file as follows: Studentnumber_SubjectCode_Assignment_versionnumber_Submissionnumber
  (e.g. 12345678_DIPMB2_AS_v2_Submission1).
• Include your student ID on the first page of the written assignment.

Before you submit your work, please do a spell check and proofread your work to ensure that everything is clear and unambiguous.

The written assignment

The information and data you need to complete this written assignment is presented in the case studies at the beginning of each task.

This written assignment covers complex lending and broking and requires you to answer the questions for one (1) of the two (2) available case studies. Each case study focuses on a different lending scenario.

Word count

The word count shown with each question is indicative only. You will not be penalised for exceeding the suggested word count. Please do not include additional information which is outside the scope of the question.

Additional research

When completing this assignment, assumptions are permitted although they must not be in conflict with the information provided in the Case Studies.

You may also be required to source additional information from other organisations in the finance industry to find the right products or services to meet your client’s requirements, or to calculate any service fees that may be applicable.

Submitting the written assignment

Only Microsoft Office compatible written assignments submitted in the template file will be accepted for marking by Kaplan Professional Education. You need to save and submit this entire document.

Do not remove any sections of the document.

Do not save your completed written assignment as a PDF.

The written assignment must be completed before submitting it to Kaplan Professional Education. Incomplete written assignments will be returned to you unmarked.

The maximum file size is 20MB for the written assignment. Once you submit your written assignment for marking you will be unable to make any further changes to it.

You are able to submit your written assignment earlier than the deadline if you are confident you have completed all parts and have prepared a quality submission.

Please refer to the Assignment submission/resubmission instructions (pdf) in the Assessment section of KapLearn for details on how to submit your written assignment.

Your written assignment must be submitted on or before your due date. Please check KapLearn for the due date.

The written assignment marking process

You have 12 weeks from the date of your enrolment in this subject to submit your completed assignment.

If you reach the end of your initial enrolment period and have been deemed Not Yet Competent in one or more assessment items, then an additional 4 weeks will be granted, provided you attempted all assessment tasks during the initial enrolment period.

Your assessor will mark your written assignment and return it to you in the Complex Lending and Broking
(DIPMB2_AS_v2) subject room in KapLearn under the ‘Assessment’ tab.

Make a reasonable attempt

You must demonstrate that you have made a reasonable attempt to answer all of the questions in your written assignment. Failure to do so will mean that your assignment will not be accepted for marking; therefore you will not receive the benefit of feedback on your submission.

If you do not meet these requirements, you will be notified. You will then have until your submission deadline to submit your completed written assignment.

How your written assignment is graded

Assignment tasks are used to determine your ‘competence’ in demonstrating the required knowledge and/or skills for each subject. As a result, you will be graded as either competent or not yet competent.

Your assessor will follow the below process when marking your written assignment:

• Assess your responses to each question, and sub-parts if applicable, and then determine whether you have demonstrated competence in each question.
• Determine if, on a holistic basis, your responses to the questions have demonstrated overall competence.

You must be deemed competent in all assessment items in order to be awarded your qualification, including demonstrating competency in:

• all of the exam questions
• the written assignment.

‘Not yet competent’ and resubmissions

Should sections of your assignment be marked as ‘not yet competent’ you will be given an additional opportunity to amend your responses so that you can demonstrate your competency to the required level.

You must address the assessor’s feedback in your amended responses. You only need amend those sections where the assessor has determined you are ‘not yet competent’.

Make changes to your original submission. Use a different text colour for your resubmission. Your assessor will be in a better position to gauge the quality and nature of your changes. Ensure you leave your first assessor’s comments in your assignment, so your second assessor can see the instructions that were originally provided for you. Do not change any comments made by a Kaplan assessor.

Units of competency

This written assignment is your opportunity to demonstrate your competency against these units:

Note that the Written Assignment is required to meet the requirements of the units of competency.

We are here to help

If you have any questions about this written assignment you can post your query at the ‘Ask your Tutor’ forum in your subject room. You can expect an answer within 24 hours of your posting from one of our technical advisers or student support staff.

Section 1: Case study A — Ray Murdoch and Steve Brown – Commercial Equipment Finance

Background

You have just met with Ray Murdoch and Steve Brown, referred to you by another commercial client.

Ray Murdoch and Steve Brown jointly own a successful and growing business that manufactures metal pallets. They trade under the name Pallets-R-Us Pty Ltd. The pallets are manufactured using material that is lightweight and durable. There has also been a very structured approach to the research and development for the engineering and design of the pallets. The pallets are used in all industry sectors. Part of the process involves powder coating the finished product, which is currently outsourced to a local well-established contractor.

It is critical that Ray and Steve’s product meets market needs. They need to maintain sustainable production and operating costs if they are to forecast their sales and cost of sales.

They have a well-established client database that provides them with repeat ‘business-to-business’ dealings. While they have only been trading for 30 months, they have a solid business plan with written supply contracts with three major business clients and several smaller business clients.

Ray and Steve now require finance to assist them with the purchase of a sophisticated machine, using the technical platform system CNC. This machine can be programmed to rapidly fabricate multiple components. The machine has an expected commercial lifespan of at least 15 years with operating software to be updated every three years. This software and upgrades is included in the purchase price of $800,000.They need to import the machine from the US. Initial enquiries with the US supplier have indicated that they will require a letter of credit for the import of the machine.

Their business employs five people and, with the expected increase in business through the automation of production, they have forecast that they will need to recruit an additional two staff members in the next 3–6 months to meet sales/production demands.

Ray has been in the metal fabrication field all his working life. He has an MBA and understands financial management. He also has solid engineering skills and developed the majority of the design works for the business. He is married and has no dependants. His wife is a school teacher and she will be retiring at the end of the year.

Steve worked with Ray at ‘Protech’ as a foreman. His skills are in production and managing project/job flow. He has high level technical skills and can complete works to specification at a high standard.

Steve and Ray have provided the last two years financial accounts for the trading business, as well as interim accounts for the current financial year. Ray’s brother provided business with a loan $500,000 when the business commenced and he is being repaid interest plus a principle repayment of $30,000 per annum.

Applicant information

The business

Key balance sheet items

Task 1a — Identify the clients’ complex broking needs

Prepare a list of questions that you would need to ask Ray and Steve about their history, experience, business performance and the intended equipment purchase.

In preparing your list of questions you should ensure that you cover the following:

• the complex features in importing and purchasing this equipment and benefits that will come to the Company from such purchase
• the identification of potential risks in such a transaction and Ray’s and Steve’s tolerance of risk
• the financial aspects of the transaction and current financial position of the business.

(800 words)

Student response to Task 1a

Task 2a —Develop complex broking options

You are required to prepare a full report addressed to Ray and Steve outlining available loan options; the process and the risks (potential and real) of which they should be made aware.

In a suitable report format you should cover the following:

1. the parties to the loan
2. outline the type of letter of credit (LC) likely to be used, the parties to the LC and the high-level steps involved in setting up and establishing LC to enable import of the equipment
3. the product options that are available to finance an equipment purchase once it has arrived in Australia
4. your recommendation of best product option, including amount, security/collateral, term, potential interest rate and residual value (if any)
5. name three (3) lenders that would consider and potentially approve this transaction and advise Ray and Steve about product type, loan term, interest rate, balloon payment (if applicable) and monthly repayment they offer
6. the procedure to commence the import of the equipment and the loan, including documentation Ray and Steve need to provide
7. the client responsibilities, so Steve and Ray fully understand the facility being proposed
8. outline the risks (potential and real) of which Ray and Steve should be made aware
9. whether personal guarantee will be required from the Director’s spouse
10. a summary of all fees and charges — including those for setup and those of the lender
11. advise which relevant disclosures need to be made
12. a request for client to inform you of any questions about the transaction and/or provide an instruction to proceed.

(800 words)

Notes: Any assumptions you make should be listed, and not be in conflict with the case study information already provided.

You are to write a report to your clients, demonstrating your professional writing skill — not simply commenting on each of the points detailed above.

The use of tables in the report to set out some of the numeric information may be of benefit.

Student response to Task 2a

Task 3a — Implement complex loan structures

Ray and Steve have accepted your recommendations and have given you authority to proceed with their application.

As part of implementing their loan application you are required to prepare a formal written loan submission to the lender for pre-approval. Your loan submission must include the following:

• details of borrower, guarantors and all contact details
• borrowers background
• an overview of the proposal — what the finance is for
• the proposed structure of the facility being recommended — product type, deposit amount (if required), loan amount, term, interest rate and residual value (if any)
• full details of the security/collateral that is to be provided
• serviceability calculations including Debt Service Cover Ratio (DSCR) calculations, including all personal borrowing facilities of the directors
• provide a ‘funds-to-complete’ table including statutory costs and any relevant fees
• highlight the relevant risks — industry, business, transactional — and how they are mitigated
• any other information that is relevant to assist the lender provide an approval
• your comments and recommendations
• list attachments

(800 words)

Notes: Any assumptions you make should be listed, and not be in conflict with the case study information already provided.

You are to write a formal submission to the lender; not simply commenting on each of the points detailed above.

The use of tables in the report, to set out some of the numeric information, may be of benefit.

Student response to Task 3a

Assessor feedback:

To pass this subject, you will need to be assessed as DEMONSTRATED for either your first submission or your resubmission.

Section 2: Case Study B — Bill Smith and John Jones – Commercial Premises Finance

Background

You are meeting with prospective clients, Bill Smith and John Jones. They have been referred to you by their accounting firm, Buckland Accountants.

The prospective clients need assistance with the acquisition of owner-occupied premises to replace their current business premises, which they rent and is becoming too small for their growing business.

True Blue Pty Ltd trades as True Blue Real Estate and was purchased as an existing real estate business three years ago. Bill Smith and John Jones are the directors.

The shareholders of True Blue Pty Ltd are Bill Smith, John Jones and a private investor, Amanda Williams, who does not work in the business and has no involvement in its day-to-day operation. Each holds an equal one-third share in the company.

Bill and John have each been in real estate for approximately 15 years, focusing on residential sales and leasing. They have gained their work experience in the local area. A wealth of knowledge of the area, coupled with an ever-expanding client base, has resulted in sustained and solid growth for the business.

Details of the property

Sale price of the property is $950,000. (There is no GST requirement as it is being purchased as a going concern.)

A deposit of $95,000 has been paid and is being held in the trust account of the settlement agent/solicitor.

A cash contribution of $233,240 will be made from the general working account of the business.

Property purchase and loan to be in the name of a new entity — True Blue Pty Ltd as trustees for the Smith Jones Unit Trust. There are a total of 99 units in the trust and the unit holdings mirror the shareholding of the trading entity, True Blue Pty Ltd.

The property is situated at 100 Smith St, Yourtown, with contracts exchanged at today’s date and an anticipated settlement date of 90 days.

General observations about the property

The property is in good condition and is well located in the same street as the current rental premises.
It is anticipated that the premises will meet the needs of the business for the next 10 years.

Summary of initial client fact find

Bill and John have provided the last two years financial accounts for the trading business, as well as interim accounts for 10 months of the current financial year.

True Blue Real Estate’s financial accounts

Applicant information — Bill Smith

Applicant information — John Jones

Other information

Notes:

• Assume for credit card debts, the minimum monthly commitment should be calculated at 3% of the credit limit.
• Each of the working directors has appropriate death, income and disability insurance in place.
• A sensitisation factor of 2% should be used when calculating financial commitments.

Task 1b — Identify the clients’ complex broking needs

Prepare a list of questions that you would need to ask Bill and John about their history, experience, business performance and the property purchase.

In preparing your list of questions you should ensure that you cover the following:

• the complex features of Company and Trust structure and benefits that will come to the Company from purchase of this property
• the identification of potential risks in such a transaction and Bill’s and John’s tolerance of risk
• the financial aspects of the transaction and current financial position of the business.

In addition to the list of questions, please also comment on any potential risks you identify (you are permitted to make assumptions here). In considering these risks you should consider:

–    how you would identify the risks and the criteria you used to evaluate these risks

–    how you would assess their current debt exposure; the tools you would use in terms of risk probability, impact and consequences.

(800 words)

Student response to Task 1b

Task 2b — Prepare complex broking options

You are required to prepare a full report for Bill and John by outlining the process and the risks (potential and real) of which Bill and John should be aware.

In a suitable format, outline to the directors the options available to them and the process that will need to take place for them to complete the new property purchase and establish the loan.

In developing your report you should cover the following:

1. the parties to the loan
2. what is the best loan structure for this transaction — provide Bill and John with options to use their own residential properties as cross security or use a cash contribution and use the property to be purchased as the security
3. your recommendation of the best option, including amount, security/collateral, term, repayments and potential interest rate
4. name three (3) lenders that would consider and potentially approve this transaction, and advise the client of the product type, loan term, interest rate, ongoing fees, balloon payment (if applicable) and monthly repayment they offer
5. the procedure to commence the loan, including documentation Bill and John need to provide
6. the client responsibilities, so Bill and John fully understand the facility being proposed
7. outline the risks (potential and real) of which Bill and John should be made aware
8. the name in which the client will sign the contract to purchase and, given Trust involvement, in what name will it be registered (this varies state to state so please advise which state you are from)
9. a summary of fees and charges — including those for setup and those of the lender
10. a request for client to inform you of any questions about the transaction and/or provide an instruction for you to proceed
11. advise which relevant disclosures need to be made

(800 words)

Notes: Any assumptions you make should be listed, and not be in conflict with the case study information already provided.

You are to write a report to clients demonstrating your professional writing skill, not simply commenting on each of the points detailed above.

The use of tables in the report, to set out some of the numeric information, may be of benefit.

Student response to Task 2b

Task 3b — Implement complex loan structures

Bill and John have accepted your recommendations and have given you authority to proceed with their application.

As part of implementing their loan application you are required to prepare a formal written loan submission to the lender for pre-approval. Your loan submission must include the following:

• details of borrower, guarantors and their contact details
• borrowers’ backgrounds
• an overview of the proposal — what the finance is for:

–    the proposed structure of the facility being recommended — product type, deposit amount (if required), loan amount, term, interest rate and residual value (if any)

–    full details of the security/collateral that is to be provided

–    Sensitised serviceability calculations including Debt Service Cover Ratio (DSCR) calculation and all personal borrowing facilities of directors (sensitisation rate is disclosed in case background)

–    provide a funds- to-complete table, including statutory costs and any relevant fees

–    highlight the relevant risks, industry, business, transactional and how they are mitigated

–    any other information that is relevant to assist the lender provide an approval

–    your comments and recommendations

–    list attachments.

(800 words)

Notes: Any assumptions you make should be listed, and not be in conflict with the case study information already provided.

You are to write a formal submission to the lender, not simply commenting on each of the points detailed above.

The use of tables in the report, to set out some of the numeric information, may be of benefit.

Student response to Task 3b

Assessor feedback:

To pass this subject, you will need to be assessed as DEMONSTRATED for either your first submission or your resubmission.