Bank Loans

Running a business is tough. It takes hard work, dedication, and the right resources to succeed. Bank Loans or Credit Types in Commercial banks make advances and advances in various structures. One of those important resources that businesses need is capital. The more money they have, the better they can grow their business. There are many ways for entrepreneurs to get financing for their company but one option is through a bank loan.

A wide range of Bank loans or Credit Types may be extensively characterized into two gatherings: Funded Credit and Non-Funded Credit.

Funded Loan or Credit: Any type of credit facility, which involves the direct outflow of bank funds is termed a 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 a short, medium, and long period. Short-term Loans are granted for working capital purposes. 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-term loans usually named Term Loan are allowed for 5 years to meet the capital investment requirement.

Cash Credit: This type of credit is provided for the working capital requirement of the borrower. It is a favorite 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 the 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 number of times.

Bill Purchase and discount: Here Export bill purchase and discount is the main principle of the financing. Bank allows advances to the borrowers by purchasing or discounting export bills. In this case, the 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 the import business. It is allowed for a specific period such as 90 days, 120 days, etc.

Packing Credit (PC): It is 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 a funded loan or credit. This type of loan facilities or loan liabilities is termed Contingent Liability. These are-

Letter of Credit: Irrevocable undertaking or payment guarantee issued by a bank to another bank on behalf of it’s the customer. It is well known as Documentary Credit. Letter of Credit (LC) is issued in international trade for shipment of goods by the 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 direct financing but a commitment for payment subject to comply presentation of documents of the bill.

Bank Guarantee (BG):  It is also indirect financing. Bank takes contingent liability by issuing a guarantee on behalf of it’s client. BG is issued for various purposes like BID Bond Guarantee for Tender Security, Performance Guarantee as security 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