BANK LOAN OR BANK CREDIT TYPES
BANK LOAN OR BANK CREDIT TYPES
Commercial bank make advances and advances in various structures. A wide range of credit facilities can be extensively characterized in to two gatherings: Funded Credit and Non-Funded Credit.
Funded
Loan or Credit: Any type of credit facility, which involve direct outflow of bank fund is
termed as funded loan facility. It may be classified as Loan, Cash Credit, Over
Draft, Bill Purchase and discount, Trust Receipt
Loan: When credit facilities
are paid to the bank or financial institutions are made in a lump sum basis or
fixed amount for a time being. Loan is allowed for a specific purpose for
business or fixed income personnel. Loans provided for short, medium and long
period. Short term Loan are granted for working
capital purpose. Medium term loans are repayable over 2 to 5 years and
provided for business extension (example-factory construction, capital
machinery purchase and installation, vehicle purchase for business purpose).
Long tern loan usually named as Term Loan are allowed for 5 years to meet the
capital investment requirement.
Cash Credit: This type of credit is
provided for working capital requirement of borrower. It is favourite mode of
financing for borrowers. There are two types of cash credit- cash credit pledge
and cash credit hypothecation.
Overdraft: This type of facilities
allowed with a certain amount in current account. The borrower can withdraw
money within the limit but not exceeds the approved or sanctioned limit. Here
withdrawals or deposits can be made any numbers of times.
Bill
Purchase and discount: Here Export bill purchase and discount is the main principal
of financing. Bank allows advances to the borrowers by purchasing or
discounting export bills. In this case bank is the purchaser or owner of the
export bill.
Trust
Receipt: This type of credit is allowed after post
import financing of the borrower who involved in import business. It is allowed
for a specific period such as 90 days, 120 days etc.
Packing
Credit (PC): It is a pre shipment financing of goods sanctioned for export related activities.
Credit is allowed for a transit period. Credit is allowed only the exporter
holds a confirmed export LC or Contact for shipment of goods. It is a short term advance with a fixed
repayment date (Usually not beyond 180 days).
Loan Against
Commitment (LAC): Allowed only for urgent settlement of commitment. Repayable
on demand within 07 (one) day.
Bills under
Credit (BLC):
Non-Funded
Loan/Credit: Non Funded credit facilities do not require fund involvement directly.
This type of credit is primarily in nature but in times it is turned into
funded loan or credit. This type of loan facilities or loan liabilities is
termed as Contingent Liability. These are-
Letter of
Credit:
Irrevocable undertaking or payment guarantee issued by a bank to another bank
on behalf of it’s customer. It is well known as Documentary Credit. Letter of
Credit (LC) is issued in international trade for shipment of goods by exporter.
There are different types of letter of credit such as Import LC at sight,
Import LC Deferred, Back to Back LC, Stand by LC. LC Not a direct financing but
a commitment for payment subject to comply presentation of documents of bill.
Bank
Guarantee (BG): It is also an indirect financing.
Bank takes contingent liability by issuing guarantee on behalf of it’s client.
BG is issued for various purpose like BID Bond Guarantee for Tender Security,
Performance Guarantee as security of senten for performance, Shipping
Guarantee, Advance Payment Guarantee (APG).
Besides these bank allows for its
client for different types of consumer loan or credits:
-Personal unsecured loan (for any
purpose)
-Auto or Car Loan
-Home Loan
-Personal Secured loan
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