Credit Financing – Term Loans & Advances

Introduction

While Bill Discounting handles short-term needs, businesses need long-term money for factories, machines, and expansion. This is Credit Financing (Term Loans).

1. Types of Loans

A. Based on Time

1. Short Term: < 1 Year (Working Capital, CC, OD).
2. Medium Term: 1 - 5 Years (Vehicle Loan, Equipment Loan).
3. Long Term: > 5 Years (Project Finance, Home Loan).

B. Based on Security

1. Secured Loan: Backed by collateral (Land, Machine). Lower Interest.
2. Unsecured Loan: No collateral. Based on creditworthiness. Higher Interest.

2. Appraisal

Before giving a term loan, banks check the 5 Cs of Credit:

1. Character: Integrity of borrower.
2. Capacity: Ability to repay (Cash flow).
3. Capital: Borrower's own contribution.
4. Collateral: Security offered.
5. Conditions: Economic environment.

Summary

• Term Loan: Repaid in EMIs over years.
• Working Capital: Repaid/Renewed annually.
• 5 Cs: Standard framework for loan appraisal.

Quiz Time! 🎯

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