Finance & Loans


In developing economy the source of funds is major requirement. Loans are the main source of funds in every field. The two main categories of loans are:

Commercial Loans

Commercial Loans are a debt-based funding arrangement that a business or a commercial entity sets up with a financial institutions like Banks. The businesses can use the proceeds of commercial loans to fund large capital expenditures and/or operations that a business may otherwise be unable to afford.The businesses have choice of variety of lending products like:

OD & Cash Credit

The loan is extended for working capital requirements of the borrowing units for smooth running of the business.A limit is sanctioned which is renewable after one year.

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Term Loan

The loan is provided for purchase of Machinery for the existing trading entities to enhance the production or for establishing new units. The loan is extended for specific period and for specific period.

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Project Loan

It is the finance provided to projects like manufacturing or any other busiess after anaylizing feasibility of the project by the financial institution.

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Bill Discounting

Bill Discounting is a process where the financial institution gets the Bill of Exchange (Cheque / PO /DD etc.) before its maturity date and below its par value. Hence the amount or cash realized may vary depending upon the number of days until maturity and the risk involved.
Discounting the bill of exchange is practiced to get the same immediately encashed before the maturity date. The liability in case of dishonor of the bill remains with the person in whose favor the bill is generated.
A commercial bill discount is an act by which the legal holder of a commercial bill (including banker’s acceptance draft and commercial acceptance draft) transfers it to bank to acquire cash before its maturity date.

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Bank Guarantee

A bank guarantee is a guarantee made by a bank on behalf of a customer (usually an established corporate customer) should it fail to deliver the payment, essentially making the bank a co-signer for one of its customer’s purchases. Should the bank accept that its customer has sufficient funds or credit to authorize the guarantee, it will approve it. A guarantee is a written contract stating that in the event of the borrower being unable or unwilling to pay the debt with a merchant, the bank will act as a guarantor and pay its client’s debt to the merchant.
The initial claim is still settled primarily against the bank’s client, and not the bank itself. Should the client default, then the bank agrees in the bank guarantee to pay for its client’s debts. This is a type of contingent guarantee. A bank guarantee is more risky for the merchant and less risky for the bank. But this is not the case with a letter of credit.

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Letter of Credit

While a letter of credit is a similar, the principal difference is that it is a potential claim against the bank, rather than a bank’s client. For example, a seller may request that a buyer be provided with a letter of credit, which must be obtained from a bank and which substitutes the bank’s credit for that of its client. In the event that the borrower defaults, the seller would go the buyer’s bank for the payment. The seller’s risk is mitigated because it is unlikely that the bank will be unable to pay the debt. A letter of credit is less risky for the merchant, but more risky for a bank.
Banks accept full liability in both cases. With a bank guarantee, a client can default and the bank assumes the liability. With a line of credit, liability rests solely with the bank, which then collects the money from its client.

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Retail Loans

Retail loans are meant for individuals rather than institutions or businesses. Retail loans are provided by banks, credit unions, and savings and loan associations. Here individuals can avail of credit for various purposes like automobile purchases, home purchases, medical care, home repair, vacations, and other consumer uses. Following loan products are available under retail loans:

Home Loans

The loan is available for purchase of under construction flat, ready possession flat, purchase of land and construction of house on that land.

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Loan against Property

Loans extended against existing property come under this category. A loan against the residential property for the personnal useage of the borrowing entity.The loan amount is calculated on the basis of loan to market value of the property and the income of the borrowing entity. A loan against the residential property for the personnal useage of the borrowing entity.The loan amount is calculated on the basis of loan to market value of the property and the income of the borrowing entity.

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Loan against Lease Rental

The loan is extended against the rentals of the commercial property and is based on the future rentals from the property.

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