You, as a banker is approached by a customer (Mr Paul) with diversified business activities. The customer has a private company in which he is the sole director and owns 100% of the company that manufactures a food product that it sells to retail supermarkets. In addition to his company ownership, he is also a silent partner in a chocolate manufacturing business that sells its products directly to customers from a retail shop next to the factory. The chocolate factory is situated in a very popular tourist area and basically all the sales are to tourists who visit the retail shop. He is also the trustee of a discretionary trust that he established. The trust owns the manufacturing equipment that is used in the food manufacturing company and in the chocolate factory. In other words the company and the partnership lease the equipment from the trust. The customer wants to expand the manufacturing activities of the private company. He and his partners in the chocolate factory also want to expand their activities. For that purposes, the trust will require a loan to purchase additional equipment that it will lease to the company and partnership. Additional working capital for the operations of the food manufacturing company and the chocolate manufacturing partnership is also required in the form of overdraft facilities.

What important information is required to determine what personal guarantees Mr Paul has to provide for the loan of the partnership? Why is it required? (2 marks)

Answer: