Types of Short-Term Loans Quiz and Flashcards

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Questions and Answers

What type of borrowers are usually considered for a balloon loan?

Borrowers with high creditworthiness (correct)

Borrowers with no credit history

Borrowers with low creditworthiness

Borrowers with moderate creditworthiness

Which type of loan discourages prepayment?

Revolving credit line

Short term loan

Term loan (correct)

Gold reserve loan

What is a common example of revolving credit?

Mortgages

Credit cards (correct)

Personal loans

Gold reserves

What distinguishes a revolving line of credit from a retail credit card?

No physical card involved Signup and view all the answers

What do lenders consider before setting a credit limit?

The borrower's ability to pay back the loan Signup and view all the answers

Which loan type allows money to be transferred into a bank account without requiring an actual transaction?

Revolving credit line Signup and view all the answers

Which type of products are Fast-Moving Consumer Goods (FMCGs)?

Products with high consumer demand Signup and view all the answers

What is the purpose of a Back-to-Back Loan?

Bridging financial gaps Signup and view all the answers

What is the main benefit of a Domestic Bills Purchase Line (BP Line) for businesses?

Maximizing the use of funds Signup and view all the answers

How does a Domestic Bills Purchase Line work in terms of fund availability?

Immediately makes funds available from receivables Signup and view all the answers

What is the purpose of Inventory Financing?

Supporting fast-moving consumer goods Signup and view all the answers

How does a BP Line differ from a traditional loan for businesses?

Provides immediate funds without waiting for check clearances Signup and view all the answers

What is a term loan?

A loan that must be repaid in regular installments over a fixed duration Signup and view all the answers

What is the typical range of the duration of long-term loans?

3-25 years Signup and view all the answers

What distinguishes short-term loans from other types of term loans?

They have a fixed repayment schedule Signup and view all the answers

What is a balloon payment in the context of term loans?

A final installment that is larger than previous payments Signup and view all the answers

What is the purpose of a revolving credit line?

To allow borrowing up to a certain limit, repay, and borrow again Signup and view all the answers

How are intermediate-term loans typically repaid?

Through monthly installments from company's cash flow Signup and view all the answers

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.