Financial credits

1. CONCEPT

Credit according to the traditional conception, is defined as the right of the debtor to receive something from the creditor, to the extent that there is reliability with the commitment of payment or return.

From a legal point of view, credit under the law, commerce and economy is the right that a person called a creditor has to compel another, the debtor, to pay. In reality, there are multiple concepts, but the most appropriate for our times and from a financial point of view, is that credit is a risky operation or transaction in which the creditor (lender) trusts in exchange for a guarantee in the policyholder of the credit or debtor (borrower), with the assurance that the latter will meet in the future with its obligations to pay the capital received (amortization of the debt), plus the tacitly agreed interests (debt service)

2. TYPES OF CREDITS

There are many types of loans, the most traditional in the financial system being commercial, micro, consumer, and mortgage loans.

COMMERCIAL CREDITS.

They are those direct or indirect credits granted to natural or legal persons destined to finance the production and commercialization of goods and services in its different phases.

Also included within this definition are loans granted to individuals through credit cards, financial leasing operations or other forms of financing.

CREDITS TO MICRO-ENTERPRISES

They are those direct or indirect credits granted to persons or legal entities destined to the financing of activities of production, commercialization or provision of services.

CONSUMER CREDITS

They are those credits that are granted to natural persons with the purpose of attending the payment of goods, services or expenses related to a business activity.

Also included within this definition are loans granted to natural persons through credit cards, financial leases and any other type of financial operation.

MORTGAGE CREDITS FOR HOUSING

They are the lines of credits destined to natural persons for the acquisition, construction, renovation, remodeling, expansion, improvement and subdivision of their own home, such credits are granted covered by mortgages duly registered in the public registries.

3. IMPORTANCE

The role that credit plays in the economy is of great importance, because, among other things, it is a very effective instrument in the process of economic reactivation, since it is through credit one of the most effective ways in which it can boost the development of an economy.

Undoubtedly, the quality of a country's economy is observable, among other indicators, through the quality of its financial system and the credit services it offers to various economic agents.

We can also mention that only through adequate credit schemes will it be possible for the economy to recover the dynamism that is so lacking today, in order to provide a solution, among others, to the country's work and development needs. Therefore, it is necessary to create the foundations of a comprehensive financial system that drives growth in the various sectors of the economy.

Credit has been the engine of the economic recovery. To mention an example, for each house that is built, activity is generated in around 40 branches of the economy, as well as 5 direct jobs and several more indirect ones.

Based on the foregoing, it can be concluded that the existence of credit is a determining factor that must be fostered to consolidate economic development strategies.

4. CREDIT POLICIES

These are the different rules that every financial institution establishes in order to administer credits; Added to this is the importance of carrying out, before granting or carrying out any operation of transfer of funds, a detailed study of the solvency and assets of the client in order to know what level of risk they assume in the operation. Let's look at some policies in detail:

Natural people

When the owner of the operation is a natural person, the documentation that the entity will request from us will be the following:

to. ID

Electoral book or DNI, Tax identification number (RUC)

b. Income support

Dependent worker

Last payment receipts Declaration of income for the last year.

Self-employed

Latest tax returns Quarterly IGV returns

In both cases, and if informal work abounded in the area, other proof of income will be requested (company certificates, bank account statements, etc.)

c. Proof of heritage

Deeds of property Declarations of property.

This statement computes all assets that do not appear notarized or that we own, but of which we do not present the property deed. In addition, all the furniture worthy of being reviewed, car, motorcycle, works of art, jewelry, etc. will be taken into account in the evaluation of the operation, although it will not be the fundamental section.

d. Signed request for the operation under analysis

This is an essential requirement because without it the entity will not be able to check certain negative and indebtedness files.

Once the entity has all the indicated documentation, it will proceed to carry out the analysis, with the objective of answering the following question: If the client does not pay, where do I collect ?. If after having carried out this analysis, the entity is not clear on the answer or it is unsatisfactory, it will deny the operation or request further guarantees or guarantors.

5. Steps followed by the financial institution in the analysis of legal entities.

Verification of negative files. These are the same for natural persons as legal entities. Verification through the deeds of empowerment of the validity of these and of the powers of the attorneys. Through the fiscal and accounting documentation, the main ratios of the business. On the other hand, we will proceed to see what its evolution has been in recent years. The evolution of the sales figure will be checked, of our fixed, variable expenses, personnel expenses and the composition of the workforce, financial expenses on sales, debt on turnover, sales per employee, etc. Once these calculations have been made on the actual financial statements, it will be seen what is the position of the company in the market, main suppliers and clients, as well as its specific weight. By last,a chash-flow of the company will be drawn up to see what its real treasury needs will be and how the transaction payment will affect it. If all these aspects are correct, compared to the general aspects of the sector, the operation will go ahead. Checking the guarantees of both the company and the businessman, in order to establish the signature regime and the need or not for personal guarantors. If the company provides real estate guarantees, its lien status will be verified through the Property Registry.in order to establish the signature regime and the need or not for personal guarantors. If the company provides real estate guarantees, its lien status will be verified through the Property Registry.in order to establish the signature regime and the need or not for personal guarantors. If the company provides real estate guarantees, its lien status will be verified through the Property Registry.

When talking about financing to companies, we must bear in mind that financing an operation that will make the company more competitive, and therefore its sales can grow, is not the same as financing a new office building, non-productive fixed assets.

6. GENERAL NOTES TO REMEMBER

Credit institutions like that the owner of the operation risks part of his money, that is, financing less than 100%. As a general rule, it is financed between 60% and 80% depending on the type of operation, destination and owner.Taxes that are subject to the acquisition of the good or service to be financed are not usually financeable (except In leasing operations) On the other hand, the knowledge of the client always influences the analysis, in such a way that it is good to have had commercial relationships prior to the request for the operation. A good track record can result in an operation, which would objectively be denied to a particular customer, being awarded. An entity, without knowing us about anything, will not finance you, because we must not forget that the bank is made up of people.We should never give false information to an entity when we request an asset operation. If the reality is bad, we still need guarantors, or we must settle for a smaller loan; In any case, we can always speak and expose our needs and commitment. Trying to cheat the bank does not usually work for several reasons. An analyst sees hundreds of trades a year, making it easy to spot inconsistencies; They have customer data from our same stratum or sector, as well as a series of contacts who will be able to inform you about us. If the entity in question detects that we are trying to deceive you, it will not trust what we say, so that the operation in question will most likely be denied and we will have that door closed forever.

Until now we have considered the operation as if it were an isolated operation; however, more and more entities want clients, not operations. They will force us to link to them through other operations that will be essential requirements for the granting of the principal. They call this cross selling.

7. CREDIT DELAY

It turns out to be the heavy wallet, since the clients have breached their payment commitment; late payment is the consequence of a bad credit rating, in terms of information, guarantees and poor management.

Therefore, taking into account this last factor, the classification of the debtor or loan portfolio must be taken into account.

Specific

Provisions will be constituted from the result of the classification of the loan portfolio, according to the criteria indicated for each type of credit.

The calculation of the amount of provisions must be made based on the total amount of the credit owed, including principal and interest.

In the event that the credit will be reclassified into a lower risk category, the financial institution may reverse the excess of the provision established, such resources being used primarily in the constitution of other specific provisions. If this is not the case, the accounting treatment of other income will be given.

Generic

Provided that the specific provisions are duly established and the entity will consider that circumstantial or circumstantial events could cause a deterioration in the quality of its credit portfolio, it may constitute duly supported generic provisions.

The applicable accounting accounts are as follows:

1409.01 Commercial

loans

1409.02 Micro business loans

1409.03 Consumer loans 1409.04 Mortgage loans

WRONG PENALTIES

The board of directors can proceed to the punishment of a credit classified as “Lost Credit” after having exhausted all the possibilities of its collection and additionally when there is real and verifiable evidence of its irrecoverability or in other cases, when the amount of the credit does not justify initiating action and more than twelve months have elapsed since said credit has expired, without any amortization of its principal and interest. Said term will be six (6) months, in the case of consumer credits.

The institution shall establish within its internal control policies, the procedures and measures necessary to carry out the punishment of its uncollectible accounts, leaving evidence in the respective minutes of the Board or equivalent body, the guidelines thereof; accounting for such credits in account 8103 Bad Debts.

Bibliography

ANTHONY Robert 1998: Financial Administration

BELLIDO SÁNCHEZ, Pedro: Financial Administration. Ed. Scientific Technician

Lima - Peru

LUGO ABAN José1998: Administrative Accounting. Edit. San Marcos

WESTON FRED, Brigham 1999: Financial Administration Manual. Edit.

Inter-American Spain

WESTON Fred. 1987: Finance. Mac Graw-Hill Mexico