Bank Loans
Bank loans are funds provided by financial institutions to businesses for various purposes, such as expansion, working capital, or equipment purchase. These loans typically involve an agreement on repayment terms, interest rates, and collateral. Businesses often seek bank loans to finance their operations and investments, and the terms of the loan can vary based on the creditworthiness and financial stability of the business.
7 Key excerpts on "Bank Loans"
eBook - ePubBusiness
The Ultimate Resource
- Bloomsbury Publishing(Author)
- 2011(Publication Date)
...Terms can vary in length from one year to 25 years, and will usually be determined by the asset that is being financed. The interest rate will reflect the lender’s perception of the risk in providing the loan. Loan financing can be provided in different ways. An overdraft is money that a business can borrow from a bank up to an agreed limit. It provides a business with short-term financing, effectively by running a negative balance on the bank account. This is a particularly good way of funding short-term requirements, such as providing working capital during the course of each month. Term loans are funds borrowed for a fixed term. Usually, such loans are repayable in equal installments over the term of the loan, although sometimes they can be repaid in a lump sum at the end of the term. Term loans are more attractive than overdrafts for long-term borrowing because repayments are fixed and the cost is usually less. However, lenders are increasingly writing into the small print that term loans are repayable on demand. If the loan has been used to finance capital assets, this could cause problems. Creditor financing is an excellent way of “borrowing” money, effectively at no cost. Typically, suppliers may give 30 to 60 days’ credit for their goods or services before payment is due. If you can sell your product or service and get paid before paying your creditors, then it will generate cash into the business. Your business may have to establish a good credit rating before credit is given, and it can be withdrawn at any time. Debtor financing is particularly useful if your business is growing rapidly and is providing credit accounts to its customers. Instead of waiting for your own customers to pay your invoices within a 30- or 60-day period, you can use the services of a third party invoice discounting or factoring firm...
eBook - ePubTreasury Finance and Development Banking
A Guide to Credit, Debt, and Risk
- Biagio Mazzi(Author)
- 2013(Publication Date)
- Wiley(Publisher)
...A bank exists and profits from making money available to others. To make money available is an intentionally vague expression because the ways banks inject liquidity (a favorite journalese expression meaning helping to increase the circulation of money) into the world are multiple and some are more direct than others. The simplest, and the one we shall focus on, is through lending money to whoever needs it (and, of course, qualifies for it). A loan is the main instrument of lending and the one we shall discuss at length throughout the book. In Section 3.1.1 we give a rigorous definition of it, in Section 3.3.1 we discuss its valuation, and in Chapter 7 we discuss its relationship to debt. Here we are simply going to introduce a loan in the context of a description of the activity of a bank. If we allow for the statement that, irrespective of the sophistication of a banking activity, the business of a bank is lending, we can simply focus on loans, and for that matter the activity of a development bank is sufficient for our discussion. Any additional activity a traditional financial institution, such as an investment bank, carries out can be seen as built on this. Who are the clients facing a development bank, the entities needing a loan? A typical client of a development institution is a sovereign or private entity most often associated with the developing world; such client would seek the help of a development bank because to do the same in the capital markets would be too expensive or downright impossible. The need for a loan can be associated with a more or less specific development project that the sovereign or corporate entity envisages to carry out. The term development project is vague but we can imagine it including building schools and hospitals, developing infrastructure and power sources, even developing a basic capital market...
eBook - ePub- Roger Buckland, Edward W. Davis, Roger Buckland, Edward W. Davis(Authors)
- 2016(Publication Date)
- Routledge(Publisher)
...1993) notes that 75 per cent of firms have overdrafts and 31 per cent have fixed-term loans. According to Keasey and Watson (1992), bank debt represents around 31 per cent of business liabilities and is equally as important as directors’ equity and trade credit as a source of business finance. This study also indicated an increased reliance on short-term bank finance during the late 1980s. The recession of the early 1990s placed issues about the availability of debt finance to small businesses firmly in the political spotlight (Keasey and Watson 1993a). The issue that attracted most political attention related to the withdrawal of debt finance by the banking sector and the implications of this for the rate of failure among small businesses. However, in more general terms, where small businesses experience difficulties in obtaining debt finance, potential viable growth may be forgone. Difficulties in obtaining debt finance do not refer simply to the fact that some firms cannot obtain funds through the banking system. Indeed, we should not expect that all projects would automatically be financed. In providing debt finance, a bank is making an investment in a business and needs to be confident that this investment will be realised at an appropriate future date. Thus, only proposals (business and/or projects) which offer realistic opportunities for repayment can expect to obtain bank debt. The provision of finance acts as a constraint on growth only in situations in which a project which is profitable at prevailing interest rates is not undertaken (or is restricted) because the firm is unable to obtain adequate funding. The extent to which viable projects may fail to obtain funding is difficult, if not impossible, to measure. Even from a theoretical standpoint there is some debate as to the extent and even existence of forms of credit rationing by banks...
eBook - ePubThe Law (in Plain English) for Galleries
A Guide for Selling Arts and Crafts
- Leonard D. DuBoff, Christopher Perea(Authors)
- 2020(Publication Date)
- Allworth(Publisher)
...CHAPTER 4 Borrowing from Banks Commercial loans can be a valuable source of needed capital for qualified gallery business borrowers. Small businesses sometimes seek loans from institutional lenders, such as credit unions, insurance companies, and pension trusts. Unfortunately, institutional lenders other than banks will rarely deal with small businesses, particularly when the potential borrower does not have an extensive track record. It is for this reason the focus of this chapter is on bank lending. You should, however, consider these other sources of funds when seeking a loan. Most institutional lenders follow the same procedures as banks and demand the same type of information. Lending policies vary dramatically from institution to institution. You should talk to several banks to determine which might be likely to lend to your gallery business and which have the most favorable loan terms. While lenders, by nature, are conservative in their lending policies, you may discover some to be more flexible than others. To save time and increase the chances of loan approval, it makes sense to first approach those banks that are most likely to view your proposal favorably and whose lending criteria you feel you can meet. You should not necessarily limit your search for a loan to your community. A statewide, regional, or even national search may be necessary before you find the right combination of willing lender and favorable terms. With the Internet, this is not as difficult as it once was. IN PLAIN ENGLISH using your credit card as a source of financing is not a good idea, except in the most extreme cases. Interest rates are high and the terms are generally not good for business planning. You must also personally guarantee any business credit card. After having shopped the marketplace and decided on a particular bank, you will be ready for the next step—preparing the loan proposal...
eBook - ePub- David J. Storey(Author)
- 2016(Publication Date)
- Routledge(Publisher)
...In short, a loan contract involves the bank incurring full downside risk and a fixed upside gain. There are three ways open to the bank to overcome this problem. • The first is for it to seek collateral in order to lower its downside risk, and this procedure is employed extensively. However, this means that individual small businesses which are unable to provide collateral, even though they may have an identical business plan and prospects to other businesses with collateral, may be denied loan facilities. • The second is for the bank to take an equity shareholding in the business and so share in the upside gain. There are three problems with this. The first is that many small business owners are reluctant to share equity with anyone, at least in part because they are unaware of the benefits. The second is that most small businesses are unlikely to grow sufficiently to yield the bank any significant equity gain. The third problem is that of • adverse selection – those entrepreneurs who are most uncertain about the prospects for their business will be most willing to share their equity, whereas those who are most certain will be least likely to share the equity. In this sense the bank would only be offered the poorest business prospects. Nevertheless, one of the major UK banks – the Midland – has implemented a series of regional pilot schemes to investigate the feasibility of equity participation, and the results will be awaited with interest (Midland Bank 1993). • The third ‘solution’ is already used by banks. It is to create a portfolio of loans, representing a spectrum combining high-risk and high-return with low-risk and low-return projects. In the portfolio there will always be projects which fail, but these are ‘balanced’ by the survivors. However the selection of the portfolio requires good judgement, with the objective of increasing the emphasis towards high-return low-risk projects...
eBook - ePubA Pragmatist's Guide to Leveraged Finance
Credit Analysis for Below-Investment-Grade Bonds and Loans
- Robert S. Kricheff(Author)
- 2021(Publication Date)
- Harriman House(Publisher)
...As a rule, in the USA on the public side, investors and noninvestors can get quarterly and annual results; in Europe, semiannual and annual are common. The detailed terms of bank agreements are sometimes made available in the exhibits to a public financial statement, but not always. Even companies with public stock do not always make their bank agreements public. Sometimes the agreement is filed on a special gated website where investors have to get permission from the company to gain access. When analyzing a bank document, remember to check for any amendments or waivers that may have changed the terms of the agreemen t over time. Closing Comment Differences in the terms and structures of Bank Loans are even more varied than in the leveraged bond market. Pricing information can also be more difficult to obtain in the bank loan market than in the bond market, as many loans trade infrequently and the flow of financial information may be more restricted. Bank debt is usually at the top of the capital structure, but do not be lulled into thinking that all bank debt ranks the same. Just because bank debt is secured does not mean it is secured by all the assets; it may share its security with other debt. Whenever possible, read the terms of a bank agreement carefully to fully understand ranking, guarantees, a nd security....
eBook - ePub- Michael Brett(Author)
- 2013(Publication Date)
- Estates Gazette(Publisher)
...40 Mortgages for business The principle of the mortgage has already cropped up in the context of the mortgage debenture: a form of securitised loan secured by way of mortgage on a portfolio of properties. But the mortgage loan itself, in its non-securitised form, is one of the more common forms of property finance. From the point of view of the lender, the legal mortgage offers excellent security. The mortgagee (the lender) enjoys many of the powers of an owner, but without corresponding liabilities. He will usually have powers to sell the property and recover his loan from the proceeds in a number of circumstances, though in practice he may prefer to appoint a receiver to do the job for him rather than become “mortgagee in possession” and incur the liabilities of ownership. The circumstances in which the loan might become repayable will depend on the way the mortgage is drawn up, but as well as the obvious cases where the borrower (mortgagor) does not pay the interest or meet the capital repayments on the due date, a number of other situations could trigger repayment. For example, if the borrower fails to observe the covenants (does not insure the property as required, perhaps) or if he is declared insolvent or bankrupt, even where the specific terms of the mortgage have been adhered to. Many different types of loan may be secured by way of mortgage — site purchase loans and development loans, for example — but we are more concerned with the use of the mortgage as a long-term financing instrument. And here a distinction has to be made. Mortgage loans are available for smaller commercial property transactions, such as the finance of a corner shop purchase by the occupier. Sometimes the building comprises both commercial and residential space...
