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Questions and Answers
What type of borrowers are usually considered for a balloon loan?
Which type of loan discourages prepayment?
What is a common example of revolving credit?
What distinguishes a revolving line of credit from a retail credit card?
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What do lenders consider before setting a credit limit?
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Which loan type allows money to be transferred into a bank account without requiring an actual transaction?
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Which type of products are Fast-Moving Consumer Goods (FMCGs)?
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What is the purpose of a Back-to-Back Loan?
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What is the main benefit of a Domestic Bills Purchase Line (BP Line) for businesses?
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How does a Domestic Bills Purchase Line work in terms of fund availability?
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What is the purpose of Inventory Financing?
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How does a BP Line differ from a traditional loan for businesses?
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What is a term loan?
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What is the typical range of the duration of long-term loans?
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What distinguishes short-term loans from other types of term loans?
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What is a balloon payment in the context of term loans?
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What is the purpose of a revolving credit line?
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How are intermediate-term loans typically repaid?
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Study Notes
Inventory Financing
- Fast-moving consumer goods (FMCGs) are products with a short shelf life due to high demand or perishability (e.g., soft drinks, confections, meat, dairy products, and baked goods).
Back-to-Back Loan
- A back-to-back loan is a standby loan available to existing Savings and Time Deposit account holders for personal and business purposes to bridge financial gaps.
Domestic Bills Purchase Line (BP Line)
- The Domestic Bills Purchase Line allows businesses to maximize fund use and replenish day-to-day working capital requirements without waiting for normal check-clearing procedures.
- The bank purchases dated checks or sales bills and advances the money to the business pending payment from clients and bank clearances.
Revolving Credit Line (RCL)
- A revolving credit line has no expiration date and allows customers to continue borrowing as long as the account remains in good standing.
- Common examples of revolving credit include credit cards, home equity lines of credit (HELOCs), and personal and small business lines of credit.
- A revolving credit line differs from a credit card in that it does not require a physical card or a purchase, and allows money to be transferred into a customer's bank account for any reason.
Term Loan
- A term loan is a loan with a fixed duration and regular repayment installments (EMI).
- Term loans come in various types, including short-term loans (< 1 year), intermediate-term loans (1-3 years), and long-term loans (3-25 years).
- Short-term loans are usually offered to firms that don't qualify for a line of credit.
- Intermediate-term loans are paid in monthly installments from a company's cash flow.
- Long-term loans use company assets as collateral and require monthly or quarterly payments from profits or cash flow.
- Some term loans may be balloon loans, where the final installment is larger than previous ones.
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Description
Learn about various types of short-term financing such as Inventory Financing, Back-to-Back Loan, and Domestic Bills Purchase Line. Understand how these financial tools work to bridge financial gaps for personal and business purposes.
