BANK LOANS

Bank loan is a medium-term form of finance obtained from a commercial bank or other similar financial institution. The loan may be secured on the entity’s assets and the interest charged may be variable. It is a loan made by a bank, to be repaid with interest on or before a fixed date to the bank.

Before we get into the specific categories of loans that banks offer, let's look at two of the major characteristics that vary among bank loans: the term of the loan and the security or collateral required to get the loan.

1. Loan Term: The "term" of the loan refers to the length of time you have to repay the debt. Debt financing can be either long-term or short-term. 

• Long-term Debt Financing: It is commonly used to purchase, improve, or expand fixed assets such as your plant, facilities, major equipment, and real estate. If you are acquiring an asset with the loan proceeds, you (and your lender) will ordinarily want to match the length of the loan with the useful life of the asset.
• Short-term Debt Financing: It is often used to raise cash for cyclical inventory needs, accounts payable, and working capital. In the current lending climate, interest rates on long-term financing tend to be higher than on short-term borrowing, and long-term financing usually requires more substantial collateral as security against the extended duration of the lender's risk.

2. Secured Or Unsecured Debt: Debt financing can also be secured or unsecured. 

• Secured Loan: A secured loan is a promise to pay a debt, where the promise is "secured" by granting the creditor an interest in specific property (collateral) of the debtor. If the debtor defaults on the loan, the creditor can recoup the money by seizing and liquidating the specific property used for collateral on the debt. For startup small businesses, lenders will usually require that both long- and short-term loans be secured with adequate collateral.
• Unsecured Loan: An unsecured loan is also a promise to pay a debt. Unlike a secured loan, the promise is not supported by granting the creditor an interest in any specific property. The lender is relying upon the creditworthiness and reputation of the borrower to repay the obligation. If the borrower defaults on an unsecured loan, the creditor has no priority claim against any particular property of the borrower. The creditor can try to obtain just a money judgment against the borrower. Until a small business has an established credit history, it cannot usually get unsecured loans because of the business's risk.

• Consumer loans
• Mortgages
• Working capital lines of credit
• Credit cards
• Short-term commercial loans
• Longer-term commercial loans
• Equipment leasing
• Letters of credit