Finance and Accounting – Loan Without a Guarantor – Accounting Assessment Answers

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Accounting Assessment Answer

Task:

Jak has worked as a successful accountant for several years since graduating with a

double major in finance and accounting. He is 28 years old and is looking to start his own accounting practice in Parap, Northern Territory. He has saved up a substantial amount of capital, 

however, he will still need to borrow $25,000 to finalise the 

arrangements. He has no assets and cannot obtain a loan without a guarantor. Jak 

consults his elderly parents, who grew up in Australia. He tells them he has a fantastic

idea and that he needs their help. Jak’s parents have always been very proud of him

and think his plans are fantastic. Jak tells his parents he needs only $25,000 and this

will be repaid within 6 months, after which time they would be under no further liability.

Arrangements are made for a bank manager to visit Jak’s parents and they both sign

as guarantor for Jak. However, the agreement they sign is one for an infinite credit

limit over an unlimited period.

Jak borrows $50,000 from the bank for a term of 4 years. His business goes well for

some time. However, after 9 months rival practices open which significantly slows

Jak’s revenue stream, forcing him to default on his loan obligations. The bank calls in

the loan and approaches Jak’s parents for the balance, a sum of $43,000.

1. Jak’s parents do not have $43,000 readily available to repay the loan and they

fear to lose their family home. They seek your advice. 

2. How would your advice be different if, instead of Jak convincing his

parents to act as guarantors, he had asked his wife Isabelle to co-sign a

loan agreement? Isabelle has arrived in Australia 5 months ago from

France. She speaks broken English and works as an artist.

 

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