Before making advances the manager should be able to answer the following questions :
1. Is the customer a wholesale dealer, manufacturer or farmer within the meaning of the act?
2. Are the goods of such a character that they can be held as security under the act?
3. Does the character and standing of the applicant for the loan, entitle him to consideration?
4. Has he had sufficient experience to insure a successful outcome of the transaction?
5. If there is an advance on the warehouse receipt, is the warehouseman unquestionably reliable?
6. Has the borrower sufficient means to supplement the margin on the goods in case of depreciation?
7. Are there any unpaid vendors or has the borrower large outside liabilities which might lead to trouble or litigation?
8. Will the insurance requirements of the bank be complied with?
9. If a farmer, is there a definite understanding as to the eventual sale of the grain?
10. Is the procedure under which the account is to be conducted perfectly clear to the customer and the bank staff?
If these questions can be satisfactorily answered the manager is in a position to recommend the credit.
Whenever possible the property upon which advances are to be made should be examined by the manager with a view to ascertaining where and what it is, and he should, subsequently, be able to identify it if necessary. The goods must be particularly described both in the promise and the assignment, and there must be no mistake as to where they are stored.
As already noted, if the advances are to be continued during a season's operations, the general promise and other forms should be taken in addition to the note. If the advance is of a casual nature, it will be necessary to take only the note, the assignment and the contract in regard to insurance.
A reasonable margin should be maintained at all times, depending upon the class of security. If the margin will permit and further advances are subsequently necessary, for instance, in order to saw logs, for the purchase of which the original advance was made, or for additional expenditure in manufacturing, it is permissible to make additional advances and take additional assignments. These should, of course, recapitulate all the security in the original assignment, including additional goods, if any. But under no circumstances must the original pledge be renewed, the goods being carried out to their final realization on each pledge given.
All that is here said as to taking assignments applies equally to warehouse receipts, provided these cover property which is clearly a portion of that described in the promise. There could be no doubt on that point if the promise is to give security by assignment of all the grain, etc., now held or hereafter held by the customer, or by warehouse receipts covering the same or any part thereof, as the printed form provides. It may be well to mention that the taking of the subsequent warehouse receipts or assignments referred to above is not a substitution. The customer has promised that he will from time to time give security on all his goods for all his advances. The subsequent assignments, therefore, are not substituted for previous security, but are given in addition and in fulfilment of his promise to give security on the particular goods covered thereby.
It should be distinctly understood that the proceeds of all loans under Sections 86-90 must be used by the borrower for current expenditure in connection with his business, and no portion of them must be applied, either directly or indirectly, in settlement of any pro-vious existing loan to the bank.
Altho not essential, it is found more convenient in most cases to have two accounts; first, the customer's current account, from which his regular disbursements can be made and to which proceeds of the advances under this section would be credited; second, a collateral account, into which all the proceeds derived from the goods pledged should be credited and from thence applied on the loan. By this method of carrying collaterals the same rate of interest may be credited as is charged on the loan on which it is finally applied. It should be noted that an overdraft should not be permitted in the current account of a customer borrowing under Section 88.