Bank Loans - Bank Loans A primer Short-term Loans Maturity...

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Bank Loans A primer
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Short-term Loans Maturity of less than one year and comprise more than half of all commercial bank loans Primary use: finance working capital needs resulting from temporary buildups of inventory and receivables. Repayment typically comes from the routine conversion of current assets to cash.
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Seasonal Line of Credit. .. Also called - Revolving Line of Credit Just like a credit card Used by companies with seasonal sales cycles to finance periodic increases in current assets, such as inventories. Often used to satisfy non-deferrable cash-flow shortfalls, like payroll.
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Seasonal line of credit. .. The credit limit is based on the borrower’s estimated peak funding requirements. The borrower may draw on the line of credit as funds are required and will repay the line as seasonal sales lead to liquidation of inventories and receivables. Interest accrues only upon the amount of borrowing outstanding.
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CAUTION! First place that firms go to when they need external cash Can quickly balloon up to the credit limit Should NOT be used to finance capital equipment or other long-term assets
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Characteristics of Long-term loans Original maturity of longer than one year Repayment provided from future earnings or cash flow rather than from short term liquidation of assets.
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Term loans. .. Used for specific purposes such as purchase of fixed assets, acquisition of another company, or refinancing of existing long term debt. Term loans can also be used to fund permanent working capital requirements.
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Term loans cont. .. Fixed or floating rate
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This note was uploaded on 02/08/2011 for the course FINANCE 400 taught by Professor Soporzetti during the Spring '11 term at Rutgers.

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Bank Loans - Bank Loans A primer Short-term Loans Maturity...

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