QUESTION 1: In general terms, banking involves the business activity of accepting deposits from customers at a low cost to the bank and then lending these funds to customers at a cost high enough for the bank to make a profit. The lending industry is very risky, so lenders are encouraged to apply good lending principles or lending canons. Although lending canons do not prevent the risks associated with lending, they do mitigate the risks involved. To meet the credit demand of the herdsmen, the CAMPARI lending principles will be used as they have proven credit a set of guidelines used to make credit decisions. Character• The Bergers currently have no relationship with the bank, they are customers of another bank.• The couple are married and wish to form a partnership to purchase a hotel.• The couple have no relevant experience in management or hospitality.• Ms Shepherd has some experience in catering. Adam is a freelance illustrator and has some sales experience.• Good, long-standing customers of their bank in the South of England.Capacity• Known financial growth under existing sole proprietorship• No evidence to suggest the Shepherds are sufficiently experienced to run a hotel.• A new business will not be Mr Shepherd's priority (still wants to work as a freelancer)Margin• The margin will reflect the risks involved.• The client's limited knowledge and experience makes this request a very risky request.Objective• The intended facility is to finance the purchase of the Highland Country House hotel in Scotland. Amount • Currently a mortgage of £280,000 with their bank, valued at £530,000 and for sale. Capital from the sale and £100,000 to be used for the injection. • The hotel for sale is valued at £590,000 but the Shepherds agree to pay £630,000. • Clients demand £420,000; however, a bridging loan of £530,000 will be required.Repayment• According to the information provided by the seller, it appears that repayment is possible.Insurance• According to the information provided, there are no details of what will be offered in guarantee.Information to be provided Considered • Risks associated with acquiring new business from another bank • Little or no experience in managing hotels/restaurants • From the information available, it also appears that the customers will need a bridging loan. This raises many questions regarding timing, amount and the question of certainty. • How safe will it be? Will the hotel have security? Will the insurance be increased and assigned as collateral?