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Miss “S” approached a bank nearby to avail loan for her own business, as well as a Self-help group which is operating in her village, the bank rejected her loan application whereas the Self-help group accepted to support her by providing the loan.
Which one of the following documents is required by the bank, but not required by the self-help group to approve Miss "S's" loan application for her business?
a. Application for loans
b. Arrangement Letter
c. Document on Collateral
d. Demand promissory note and take delivery letter
Answer:
Answer by Student
The correct option is (c): Document on Collateral.
Detailed Explanation by Teachoo
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Let’s check all the options and see why they are required or not required by the bank and the self-help group.
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Option (a) Application for loans.
This option is required by both the bank and the self-help group to approve Miss “S’s” loan application for her business. An application for loan is a formal document that contains the details of the borrower, the purpose of the loan, the amount of the loan, the duration of the loan, the interest rate, and the mode of repayment. An application for loans helps the lender to assess the creditworthiness and eligibility of the borrower and to keep a record of the loan transaction. Thus, this option is
incorrect.
❌
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Option (b) Arrangement Letter.
This option is required by both the bank and the self-help group to approve Miss “S’s” loan application for her business. An arrangement letter is a document that contains the terms and conditions of the loan agreement between the lender and the borrower. An arrangement letter specifies the amount of the loan, the interest rate, the repayment schedule, the collateral (if any), the penalties (if any), and other clauses that govern the loan contract. An arrangement letter helps to avoid any misunderstanding or dispute between the lender and the borrower and to ensure that both parties fulfill their obligations. Thus, this option is
incorrect
❌
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Option (c) Document on Collateral.
This option is required by the bank, but not required by the self-help group to approve Miss “S’s” loan application for her business. A document on collateral is a document that proves that the borrower has pledged some asset or property as a security or guarantee for the loan. A document on collateral helps the lender to recover the loan amount in case of default or non-repayment by the borrower, by selling or seizing the collateral. A bank usually asks for a document on collateral from a loan applicant, especially if he or she does not have a regular income or a good credit history. A self-help group does not ask for a document on collateral from a loan applicant, because it relies on mutual trust and cooperation among its members, who are mostly poor and do not have any valuable assets or property. Thus, this option is
correct.✅
- Option (d) Demand promissory note and take delivery letter. This option is required by both the bank and the self-help group to approve Miss “S’s” loan application for her business. A demand promissory note is a document that contains an unconditional promise by the borrower to pay back the loan amount with interest to the lender on demand or at a specified date. A demand promissory note helps to create a legal obligation for the borrower to repay the loan, and to serve as evidence of a debt in case of any dispute or litigation. A take-delivery letter is a document that acknowledges that the borrower has received the loan amount from the lender. A take-delivery letter helps to confirm that the loan transaction has been completed and to start the repayment schedule from that date. Thus, this option is incorrect.❌
Thus, option (c) is correct because it includes the only document that is required by the bank, but not required by the self-help group to approve Miss “S’s” loan application for her business.
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