Loans from financial Institutions : Finance Training in Chandigarh

Loans from financial Institutions -Finance Training in Chandigarh

Loans From Financial Institutions:

Today, we Will Discuss about Loans from financial institutions From Finance training in Chandigarh which is also referred to as  term finance; represent a source of debt finance which is generally repayable in more than one year way but less than 10 years. They are employed to finance acquisition of fixed assets and working capital margin. Term loans term working capital need and tend to be self liquidating over a period of time, usually less than one year. Interest is applicable on such loans at a fixed rate and charges and the amount of the loan is to be repaid by way of installments in a number of years.

Features of Loan from FIs

1. Security: Terms loans typically represent secured borrowing. With the proceeds of the term loan,Usually assets provide the prime security. Other assets of the firm may serve as collateral security.

The Different loans which are provided by All loans which are provided by many financial institutions, along with interest, liquidated damages, commitment charges, expenses, etc, are secured by the way of :

i) First equitable mortgage of all immovable properties of the borrower, both present the future; and

ii)  In favor of commercial banks for obtaining working capital advance in the normal courses of business.For Both Present and future, Hypothecation of all movable properties of the borrower,  Subject to prior charges

2. Interest payment and Principal Repayment :  To the general category of borrowers, financial institutions charge an interest rate that is related to the credit risk of the proposal.The interest on term loans is a definite obligation that is payable irrespective of the financial situation of the firm., subject usually to a certain floor rate. Financial institutions impose a penalty for defaults. In the case of default of payment for installment of principal and/or interest in default. In addition to interest, lending institution levy a commitment fee on the unutilized loan amount.

3. Restrictive Covenants: In order to protect their interest, financial institutions generally impose restrictive condition on the borrowers.

Advantages of Loan from FIs

The Advantages of loan from FIs are as follows:

1. Borrowers Point of View : Term loans offer the following advantages to the borrower’s point of view are as follows :

I. The interest and principal repayment are obligatory payments. Failure to meet these payments may threaten the existence of the firm.

II. Term Loan contracts carry restrictive covenants which may reduce managerial freedom. Further, they entitle the lenders to put their nominee (s) on the board of the borrowing company.

III. Term loans increase the financial risk of the firm. This, in turn, tends to raise the cost of equity capital.

2. Lender’s Point of View : The disadvantages to the lender of the term loan are as follows:

I. Term Loan do not carry the right to vote.

II. Term Loan are not represented by negotiable securities (of course, if term loan can be secularized, This limitation can be overcome )

For More information Finance Training in Chandigarh will provide you best and optimum training to help you understand how to start the small business or large keeping the financial need and requirement on the mind.